What is a Deficiency Balance?

What is a Deficiency Balance and What Can I Do About It?

A deficiency balance is a result of a sale of property, such as a car, boat, or home that was repossessed or foreclosed upon, but the amount of money from the sale was insufficient to cover the amount owed. Your creditor may then go to court in order to obtain a deficiency judgment against you in order to collect the remaining balance. If you have been notified that you have a deficiency balance, you could be looking at several actions that the holder of the judgement could take against you in order to collect.

How Did I Get Here?

You might have thought that a foreclosure or repossession was the end of the matter. That might have been true at one time, but now creditors pursue debtors with a deficiency balance nigh to the ends of the earth. You may not have even known until you received a notice that there even was such a thing as a deficiency balance or deficiency judgment. Unfortunately, the more protection that consumers are afforded, the more ways that creditors find to work around those protections. Once your property was sold, your creditor calculated the difference between the proceeds of the sale and the amount owed. For even a small deficiency balance, a number of creditors will go to court and obtain a judgment against you.

What Your Creditor Can Do?

Once your creditor has sold the property and determined that the money obtained at sale is insufficient to cover the amount of the loan or mortgage, they may proceed to court and present their case. If the judge agrees, a deficiency judgment will be entered against you. Armed with this, your creditor can then proceed to collect on your deficiency balance in the following ways.

1 Wage garnishment

Wage garnishment is used to collect a wide variety of debts. In the case of wage garnishment to address a deficiency balance, your creditor will obtain a court order and present this order to your employer. Your employer will then take money out of your paycheck and give it to your creditor or their agent until the judgment is paid off.

2 Bank levy

A bank levy is a court order that allows a creditor or their agent to remove funds from your bank account in order to satisfy your deficiency balance judgment. They can’t just arbitrarily sees and drain every sent in your bank account, but are only allowed to take what you actually owe and their legal expenses should those be covered by the court order.

3 Judgment lien

If you own real estate the court may order a lien against the property that will guarantee your creditor will receive payment on your deficiency balance when the property is sold. Courts can also order properties to be sold in order to satisfy debts such as a deficiency balance.

4 Seizure of property

The court may order that other property be seized and sold in order to satisfy deficiency balance judgment.

There are certain funds and exempt property that cannot be garnished or attached in order to pay a debt. It takes an experienced lawyer to look at your total estate and figure out what properties, accounts, and possessions are exempt by law.

What You Can Do?

If you have little in the way of assets and below a certain level of income, you may be what is called “judgment proof.” They may have that judgment, but there is nothing on the other end for them to collect. Please note, the judgment will stand and appear on your record for seven years, and at the end of that term your creditor can return to court and have it renewed. Likewise, if you should experience an increase in income or obtain valuable property, the creditor may find out and begin proceedings to garnish, levy, or seize in order to satisfy the deficiency balance. There are things that you can do to protect yourself.

1 Negotiate a payment plan

This might sound like caving in, but most creditors would prefer not to spend the money on going to court and pursue expensive and time-consuming remedies. When you negotiate for a payment plan, be realistic and take into account your monthly expenses before deciding on a payment sum.

2 File for bankruptcy

The automatic stay immediately prevents your creditor from taking any action to garnish, seize, or levy. If you are filing for Chapter 13 bankruptcy, and are required to pay your deficiency balance, it will be substantially less than you might pay otherwise. If filing for a Chapter 7 bankruptcy, a discharge will automatically liquidate your assets aside from exemptions in order to pay your creditors. Once that money is gone your debts are discharged. You should not consider filing for bankruptcy unless you have substantial debts over a number of areas in your life.

3 Hit those exemptions

Even if you don’t file for bankruptcy, exempt property can be a shield against being hit with court orders to seize property, levy bank accounts, and garnish wages. You will have to argue these in court before a judge. A portion of your wages is exempt if you make under a certain amount per year. Your homestead or equity in your homestead is exempt, as is equipment that is vital to your work or well-being. Certain retirement accounts and benefits may be exempt as well.

You Need Help

Here at Van Horn Law Group we have experience in all kinds of debt. We can help you get on top of your debt, no matter whether it’s a deficiency balance judgment, student loans, or even zombie debts. We have experience in obtaining the best results possible for clients, and can offer an array of remedies to help you get back on track financially.

Call our offices in West Palm Beach or Fort Lauderdale and schedule a free initial consultation. We will give you our best advice on how to proceed, and keep you informed every step of the way. Your creditors have attorneys to fight for their interests, and you should have a committed an experienced attorney to fight for yours.