What is a Deficiency in a Foreclosure Action?

A deficiency is what is left over when your home loan lender (actually the loan trustee) sells your house in a foreclosure proceeding and the house is sold for less than the loan(s). For example, if you owe $300,000 but the house sells for $260,000 in a foreclosure proceeding, the deficiency will be $40,000+.

In a chapter 7 bankruptcy where you chose to give your house back, there is no deficiency or at least none that you need to worry about. That debt is discharged along with your other dischargeable debts; both home loans are discharged if you have a second mortgage.

In a chapter 13 bankruptcy, you virtually always keep your house, it is not sold in foreclosure, and thus there is no deficiency.

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