A deficiency judgment is a court directive against a debtor if the foreclosure sale did not generate adequate funds to fully discharge the mortgage amount. In other words, you are obliged to pay whatever the shortfall between the price a foreclosed house fetched and the balance on your loan amount.
Chapter 7 Bankruptcy
But a deficiency judgment need not be the end of the road for you. You can take recourse to filing chapter 7 bankruptcy to sidestep a deficiency judgment. The procedure is simple and all that you need to do is to submit the prescribed forms obtainable from the bankruptcy court clerk.
Once you file a Chapter 7 bankruptcy, all your debt liabilities and the deficiency judgment will stand diascharged. As a naturak follow-up, the court authorities will inform your mortgage lender as well as all your other creditors about the deficiency judgment.
Filing
It is preferable that you hire a consultant conversant with all updated bankruptcy laws to ensure things do not go amiss. Proper filing for bankruptcy should extricate you from all your creditors.
Three months after you file for bankruptcy, the mortgage lender can initiate foreclosure action. But this foreclosure, in legal parlance, will be described as ‘in rem’ (against the land) and this characterization will absolve you of personal liability to the mortgage institution.
Yet another option for you would be to file a Chapter 13 bankruptcy – under which, you settle as much of the debt liability you possibly can, with full knowledge of the court.
But you should resort to filing for bankruptcy only as a last step if all other options to save your home from foreclosure fails. As a matter of fact, you should negotiate and prevail upon your mortgage lender and obtain written assurance prior to the foreclosure that the lender will not drag you to court should any balance be there on your mortgage.
