What is a deficiency judgment? Explain, and provide some examples
What will be an ideal response?
Unless otherwise agreed, after a debtor's default, if the proceeds from the disposition of collateral are not sufficient to satisfy the debt to the secured party, the debtor is personally liable to the secured party for the payment of the deficiency. The secured party may bring an action to recover a deficiency judgment against the debtor.
Students' examples may vary.
Example: Sean borrows $15,000 from First Bank to purchase a new automobile. He signs a security agreement, giving First Bank a purchase money security interest in the automobile. Sean defaults after making payments that reduce the debt to $13,250. First Bank repossesses the automobile and sells it at a public auction for $11,000. The selling expenses and sales commission are $1,250. This amount is deducted from the proceeds. The remaining $9,750 is applied to the $13,250 balance of the debt. Sean remains personally liable to First Bank for the $3,500 deficiency ($13,250 balance - $9,750 proceeds).
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