Deficiency judgment is money awarded to creditors when assets securing a loan do not cover the debt owed by a debtor. When a debtor becomes insolvent, a creditor can repossess the asset securing the loan, and then sell the asset to recover the debt. However, the asset may not cover all the debt owed to the creditor, forcing the creditor to get a deficiency judgment to cover the rest. In order for deficiency judgment to be granted, a creditor must be in a state that recognizes deficiency judgments for the type of debt and prove that the asset was sold at a fair price. Deficiency judgment most often arises in mortgage foreclosures where the home does not cover the cost of the mortgage.
[Last updated in July of 2021 by the Wex Definitions Team]