A deficiency balance is an obligation to reimburse the portion of an obligation that resulted from the sale of a property that you had previously financed. It can result from the repossession of a vehicle or the foreclosure of a residence. Typically, a finance company will sell a repossessed vehicle at auction for significantly less than what was obligated on it. Consequently, the deficit balance.
As with the majority of individuals who finance a vehicle, by the time you drive it off the lot, you are already ""upside down"" because vehicles typically lose value or depreciate quickly. And as you are aware, the difference between the vehicle's market value and loan balance makes you financially responsible if the vehicle is ever repossessed or completely destroyed.
Your finance company will report the deficiency balance on your credit report, which will eventually be reported as ""charged off"" The deficiency may not have resulted in any collection calls or correspondence, but that does not mean it will not return to haunt you.
In fact, a charge-off does not indicate forgetfulness. It simply indicates that your creditor is no longer pursuing collection of this debt. However, it does not imply that no one else will. In actuality, a third party, such as a debt collector, may and will do so.
Same holds true for a property, especially in the current challenging housing market, where published reports estimate that at least a quarter of the nation's homeowners are ""under water."" After the residence has been sold in a foreclosure proceeding, the homeowner is responsible for any remaining loan balance.
The burden of a deficiency balance can be placed on a family already devastated by the loss of their residence due to foreclosure. Legislation, such as the Mortgage Forgiveness Debt Relief Act of 2007, provides householders with some protection against tax liabilities related to foreclosure deficiency balances, but collection efforts by third party debt collectors can leave families with few alternatives besides bankruptcy.
Neglected deficiency balances can quickly result in deficiency judgments, wage garnishments, and bank account freezes. Your charged-off deficiency balance could be discreetly acquired by a third-party debt collector, leaving you in a much worse financial situation.
According to at least one independent survey conducted in the autumn of 2011 by Earnest & Young, debt acquisition by third parties is a multi-billion dollar industry. In this published report, third-party debt collection totaled $55 billion.
According to the Wall Street Journal, debt collection is such a lucrative business that the banking behemoth Capital One Financial Corp has been accused of taking aggressive collection actions against individuals who were """"released"""" from their obligations in bankruptcy.
When a deficiency balance results in a judgment and the debt collector seeks a local court's intervention for enforcement purposes, a Sheriff, Marshall, or other judgment enforcement agent is typically tasked with attaching a levy against the debtor's assets. This may result in a court order requiring your employer to withhold wages or your bank to block your account.
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