A deficiency judgment is a lien against a debtor, Defendant, or borrower whose foreclosure sale did not produce sufficient funds to pay the mortgage in full. When a foreclosure is completed and the home is sold or assessed by an appraisal for the loss on the mortgage, the deficit amount the bank will not get back from the balance of the mortgage is called a deficiency. Even if the bank accepts a “deed in lieu of foreclosure” they can still get a deficiency judgment against the borrower. In most states, the lender has an option to get a judgment against the borrower, which will have to be repaid at some point in the future. This judgment can affect the homeowners and their credit report.
One option you can choose for discharging a deficiency judgment is by filing bankruptcy. You will need to commence a Chapter 7 bankruptcy case.
How to File a Chapter 7 Bankruptcy
If you choose to file the case yourself, you can obtain the standard forms necessary through the bankruptcy court clerk. By filing for a Chapter 7 bankruptcy, your debts, including a deficiency judgment will be discharged. Once you file the petition for bankruptcy, the court clerk will notify all of the creditors listed in your case, including the mortgage lender with the deficiency judgment against you.
Getting Legal Help with a Deficiency Judgment
A debtor who has a deficiency judgment should consult with a legal professional that specializes in bankruptcy law for possible remedies, including filing for bankruptcy, which would give them an exemption from their creditors. Ninety days after you file bankruptcy, the automatic stay, which protected your home expires. The mortgage company can then file the foreclosure action. However, any foreclosure action would be “in rem” which means “against the land”. Therefore, you would be exempt from any personal liability to the mortgage company. (See also How Automatic Stay Can Stop Foreclosures).
If you consent to the foreclosure, rather than filing for bankruptcy, you could try to file a response to the court and serve the mortgage lenders stating that you consent to the foreclosure “IN REM”, but are reminding the Court and the mortgage company that any judgment against you shall be “IN REM” and not against you and you discharged the debts in bankruptcy.
Since the bankruptcy laws are frequently changing, it’s best to seek professional advice from an attorney who specializes in these cases.
