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What is a Deficiency Balance and How Can Bankruptcy Take Care of It?

A deficiency balance is the remaining balance due to a lender after the lender repossess and sells the collateral in which it has a security interest in (i.e., a car), and the proceeds from the sale is not sufficient to pay the complete debt owed the lender.

A common example of a deficiency balance is with a car and the credit union that lent the money to purchase the car.  The credit union retains a security interest in the car.  If a borrower defaults on making payments on the car, the credit union can repossess the car, sell the car at auction (for usually a lot less than the car is worth on the private market), and apply the proceeds of the sale to its loan.  If an amount is still owing after the sales proceeds are applied to the loan, this creates a deficiency, and the credit union can sue in court to obtain a deficiency judgment against the borrower.  For example, a borrower owes $15,000 on a 2011 Ford.  The borrower defaults on the loan, and the credit union repossesses the car and sells the car at auction for $8,000.  The credit union applies the sales proceeds of $8,000 to the total amount owed ($15,000), and this leaves a deficiency balance of $7,000.  The credit union can then sue the borrower for the $7,000 deficiency balance.  Once the credit union obtains a deficiency judgment, the credit union can then garnish wages and bank accounts of the borrower.

HOWEVER, bankruptcy can take care of deficiency balances and deficiency judgments.  By filing bankruptcy, the borrower in the above example will no longer be liable for the deficiency balance or judgment, if obtained.

If you have a deficiency balance or judgment due to a car repossession, please call today to schedule your free in-office bankruptcy consultation.


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Tom Butcher, Attorney At Law

Tom Butcher is the owner and attorney at Butcher Law Office, LLC. He represents clients in financial distress in Chapter 7 Bankruptcy and Chapter 13 Bankruptcy. Tom offers a friendly, respectful, and compassionate experience for clients who are in financial and legal distress. Rather than taking a mechanical approach to filing bankruptcy for clients, like other bankruptcy firms, Tom strives to offer a personal, one-on-one experience, where the client’s situation is of utmost importance. Tom believes this personal attention keeps him connected to the community, and serves his clients best during their bankruptcy.
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