A judgment is the outcome of a lawsuit where the winning party is awarded a sum of money from the losing party.
In the bankruptcy context, a judgment typically results when a creditor sues and wins in court, i.e., Bank of America v. John and Jane Doe.
The judgment is the piece of paper that is docketed at the courthouse at the end of the case that says something like “John Doe owes Bank of America $15,000.” Its effect can vary greatly depending on what property a debtor owns.
A judgment automatically becomes a lien on real property owned by the debtor in the county where the judgment is docketed. It can also be moved to any other county where the debtor owns real property and attach to that property. When I ask people who come in for a consultation about the debt owed on their home, they will tell me about any mortgages owed. However, most of the time they do not realize that if they have real property, any judgment against them may be an additional lien on that property.
Additionally, the sheriff may come out to your home and look around for personal property that could be sold and the money applied to the judgment or seize money from a bank account.
Anyone sued by a creditor should consult with a bankruptcy attorney to determine what effect having a judgment entered against him would have.
A deficiency arises when a secured creditor sells its collateral and the money from the sell is not enough to pay off the debt in full. Consider these scenarios:
Jane defaulted on her mortgage. She owed $100,000, and the house was sold for $80,000 at the foreclosure sale. The $20,000 difference is called a deficiency, and Jane still owes the money even though she no longer owns the house.
John owned a Honda. It was repossessed when he defaulted in payments. He owed $10,000 and the car sold for $6,000 at auction. The $4,000 difference is a deficiency, and he still owes the money even though the car is gone.
The deficiency amount is still a personal debt owed by the debtor to the creditor after the collateral is sold, and the creditor may sue the debtor in an attempt to collect. A deficiency is a main reason that people who lose their home or car typically need to file bankruptcy in order to clean up the entire debt. Some people believe that losing the property is all that can happen if they do not make loan payments, but that is not true.
Bankruptcy can wipe out these deficiencies and should be considered any time a person loses property to a creditor. A bankruptcy attorney will be able to determine what effect filing bankruptcy would have on any deficiencies owed.