The Treatment of a Deficiency Judgment in Bankruptcy
The deficiency judgment is a legal judgment against the remaining loan balance owed by the borrower. The lender has the right to get judgment against the borrower obligations. A short sale of a real asset at a moderate price is going to happen when the lender like to avoid the foreclosure and pressing borrower to pay off the balance in their financial hardship. The lender will not release the borrower without collecting the remaining balance of the loan. The court orders that borrower personally liable for unpaid debt. This is called the deficiency judgment. When the borrower has filled a bankruptcy and the lender also claim his deficiency judgment there are some different treatment for that deficiency judgment in bankruptcy.
If the lender gets the chance to claim deficiency judgment against remaining balance of the loan the borrower before the date of the bankruptcy, this debt of the borrower will be consider as secured debt which must clear off first. If on this situation the borrower can file a Motion to Avoid Lien to make this lien unsecured and the motion is granted, then this deficiency judgment become an unsecured lien which must be exempted by the court to clear off under bankruptcy act. In case of non-granted motion the lender will get chance to claim.
If the lender can’t obtain an offer granting judgment against the borrower to claim the deficiency money before the filling of bankruptcy you have the chance to avoid this unsecured lien. Overall the filling of bankruptcy will help to automatic clear off all the debt the lender will dismiss the case of deficiency judgment. The lender must claim his deficiency judgment but you need to get knowledge about your state’s law on deficiency judgment from you bankruptcy attorney who will help you to decide whether the filling bankruptcy is best option for you or not.