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What is a deficiency in a mortgage?

If you owe money on your home after a foreclosure, bankruptcy may begin looking very appealing. The money you owe, called a deficiency, isn't going anywhere and you don't have a sufficient job to pay it down.

Bankruptcy makes sense for a lot of people once foreclosure pushes them out of their home while they still carry the weight of thousands of dollars they owe on the house that they cannot pay. Let's say you owe $250,000 on a home in the Nashville area and lose your job. After some time, you cannot pay the mortgage without a job, and the foreclosure process gets set in motion.

If you sell the house to get out from under the debt, but cannot get everything you owe out of the sale, the leftover debt after the sale is called a deficiency. So you sell the home, but can only get $175,000 for it because the exploding home values that everyone in Nashville has been buzzing about for years didn't quite hit the area where you own. Instead, you're left owing $75,000 without a roof over your head to show for it, without a job. You can either choose to pay down this remaining debt or attempt to relieve it through a bankruptcy.

The bankruptcy may help you divest yourself of the extra mortgage debt and also may make it more difficult to receive another mortgage later on. With proper legal counsel, you can explore all of your debt relief options and understand the full scope of how a bankruptcy can allow you to move past it to a new life on the other side of this difficult financial season. Be sure to seek out all the guidance necessary to protect your interests and help you make a fresh start.

Source: Goble & Yow PLLC, "Chapter 13," accessed Nov. 10, 2017

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