Losing your home or your car is devastating. You tried your best to make the payments but because of unemployment, a sudden illness, or other financial crisis, you were unable to keep up with the payments. You missed one payment, then two payments and before you realized what was happening, the creditor was foreclosing or repossessing the collateral. You thought that was the end of the process until you received a letter in the mail saying you owed thousands of dollars to the creditor. The letter said that if you did not pay the amount owed, the creditor would seek a deficiency judgment. What do you do now?
What is a Deficiency Judgment?
In a foreclosure proceeding, the deficiency judgment is the amount of remaining on the debt after the home has been liquidated. In other words, if you owe $100,000 on your mortgage, including costs and fees, but the home sells for $70,000, the mortgage company can ask the court to grant a deficiency judgment in the amount of $30,000. This deficiency judgment is a separate debt from your mortgage. Your mortgage debt was satisfied by the sale of your home at the foreclosure sale; however, the deficiency judgment is a “new” debt that the mortgage company can continue to collect.
In a vehicle repossession, the same theory applies. If the vehicle sells for less than you owe on the car loan, the lender can file a lawsuit asking the court to grant a deficiency judgment for the remaining balance. The deficiency judgment becomes another debt that you owe.
Can Bankruptcy Discharge Deficiency Judgments?
Yes, filing a bankruptcy case will discharge deficiency judgments. Most people assume that once the home or the car is sold, they no longer need to worry about the debt. If the lender is successful in obtaining a deficiency judgment, the problem can get much worse if the lender tries to collect on that judgment. However, if you file a bankruptcy case, the deficiency judgment will be discharged with your other unsecured debts. The creditor cannot try to collect on the deficiency judgment once the debt is discharged through your bankruptcy case. This gives you a fresh start to rebuild after losing your home and/or your vehicle.
If you are facing a foreclosure or repossession, contact my office to schedule a free bankruptcy consultation. In some cases, you may be able to save your home and/or your vehicle. If not, filing a bankruptcy case can help you clean up your debt problems so that you do not need to worry about a deficiency judgment making a difficult situation worse.
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The Law Office of Travis J. Richards, LLC is a full-service Mount Holly bankruptcy law firm focused on Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, debt consolidation, credit repair, tax liens, student loans and foreclosure. We represent clients in Burlington County and throughout South Jersey.
Contact our office at 609-267-5297 to schedule your free consultation to discuss bankruptcy and non-bankruptcy alternatives. You may also use our convenient online contact form and one of our friendly, professional staff members will contact you to answer your bankruptcy questions and/or schedule a free consultation with Travis J. Richards.
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