What Is a Deficiency Balance?

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Question:

What is a deficiency balance? Will I owe creditors this money if I file for bankruptcy?

Answer:

A deficiency balance is the remaining amount that is due and owing a lender after the collateral (real estate or personal property) securing a loan is sold for less than the outstanding balance of the loan. In other words, it is the difference between what the seized or foreclosed property was sold for and the outstanding debt due under the loan. If the secured property was sold for less than the amount due under the loan, then the remaining balance is known as the deficiency balance. Deficiency balances most commonly arise from home foreclosures, short sales, and car repossessions.

Deficiency After Foreclosure

If you owe the bank $100,000 under a delinquent home mortgage (including costs and fees), and the bank sells the home at a foreclosure sale for $80,000, the remaining $20,000 is the deficiency balance.

Deficiency After Short Sale

If you owe the bank $500,000 under a delinquent home mortgage (including costs and fees), and the bank approves a short sale for $450,000, the remaining $50,000 represents the deficiency balance under the short sale.

Deficiency After Car Repossession

If you owed $12,000 to your car loan lender (including costs and fees), and the lender repossesses the car and sells it at auction for $10,000, then the deficiency balance is $2,000.

by: Karen Epstein

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