Deficiency Balance After Repossession or Foreclosure

February 16, 2012 by  Filed under: Bankruptcy 

Deficiency means it’s simply not enough. It’s not enough that you lost a vehicle to a repossession or a home to foreclosure, the debt in full must still be repaid. The deficiency balance reminds you that you’re not quite done with your lender or in most instances, your third party debt collector. A deficiency balance can remain as much a part of your life as a third party debt collector wants it to be.

A deficiency balance is an obligation to repay the portion of an obligation that arose from the liquidation of a certain property you had once financed. It can arise from a repossessed vehicle or a home lost to foreclosure. A repossessed vehicle for example is usually sold at an auction by the finance company for an amount far less that what was owed on it. Hence the deficiency balance.

Like most people that finance a vehicle, by the time you drive the it off the dealer lot, you’re already “upside down” because vehicles typically lose value or depreciate rapidly. And as you know, that difference between that market value and loan balance leaves you on the hook if the vehicle is ever repossessed or totally damaged.

Your finance company posts that deficiency balance on your credit report which eventually reports on your credit file as “charged-off”. You may not have received any collection calls or harassing letters, but that does not mean that the deficiency won’t come back to haunt you.

In fact a charge-off doesn’t mean forgotten. It just means that your creditor is no longer attempting to collect this debt. But it doesn’t mean that someone else won’t. In fact, someone else, such as a third part debt collector, may and in fact will.

Same applies to a home particularly in this difficult housing market where published reports estimate that at least a quarter of the nation’s homeowners are “under water”. After the home is sold in a foreclosure proceeding, the loan difference not satisfied in the sale is the homeowner’s responsibility.

A home foreclosure can place the burden of a deficiency balance against a family already devastated by the loss of their home. Legislation such as the Mortgage Forgiveness Debt Relief Act of 2007, does give homeowners some protection against tax liabilities related to foreclosure deficiency balances but collection attempts taken by third party debt collectors can leave families with few options other than bankruptcy.

A deficiency balance ignored can soon become a deficiency judgment and ultimately a wage garnishment or bank account freeze. Your charge-off deficiency balance could be quietly purchased by a third party debt collector to soon find you laying in the wake of a far worse financial entanglement.

In fact debt acquisition by third parties is a multi-billion dollar industry according to at least one independent survey conducted in the fall of 2011 by Earnest & Young. In this published report debt collection by third parties totaled $55 billion.

Debt collection is such a lucrative enterprise that banking giant Capital One Financial Corp has been alleged to take aggressive collection actions against individuals that were “cut loose” from their obligations in bankruptcy the Wall Street Journal reported.

In most instances, when a deficiency balance results in a judgment, whereby the debt collector seeks a local court’s intervention for enforcement purposes, a Sheriff, Marshall or other judgment enforcement agent is entrusted to attach a levy against a debtor’s assets. This levy can most commonly result in a binding order demanding that your employer withhold wages or bank to place a freeze of monies in your account.

Alex Frias is the publisher of, an information bankruptcy website for individuals an joint petitioners seeking to file bankruptcy without an attorney.

Alex Frias’ bankruptcy petitioner services provides fully compliant bankruptcy assistance and is a Debt Relief Agency in accordance with the bankruptcy code (Title 11 USC).

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