Kentucky Deficiency Judgments on the Rise, But Louisville Bankruptcy Stops Them

Deficiency judgments are on the rise, as banks continue to look for ways to make up the millions of dollars lost through the glut of foreclosures nationwide, The Wall Street Journal is reporting.

A deficiency judgment is when the bank takes a home through foreclosure and then sells it at auction for less than the loan amount and goes after the original homeowner for the difference. In many cases, this can mean a borrower is saddled with a judgment of $100,000 or more, depending on market value.
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Luckily, there is a solution and it’s filing for bankruptcy in Louisville. If a person is hit with a big deficiency judgment, they likely can’t pay it off if their house just went into foreclosure. Therefore, consulting with an experienced Louisville bankruptcy lawyer can help consumers get out from under not only that debt, but other forms of debt, such as credit card bills, medical bills and other money owed. In other cases, it can protect a consumer from dealing with a bank or a deficiency judgment in the future — once they have gotten back on their feet financially.

As The Wall Street Journal states, banks are making that more and more difficult these days. As they struggle to generate revenue after the downturn in the real estate market, banks are now going after homeowners with a vengeance.

The news article highlights the case of a man who lost his job and stopped making payments on a vacation house he owned in Florida. After the foreclosure went through last year, he thought it was over.Then he got a call telling him a deficiency judgment had gone through and he owes $193,000 to the bank. The man said he never considered the bank would go after him, but he said he’ll be contacting a bankruptcy lawyer to seek protection.

There are 41 states, including Kentucky, that allow deficiency judgments. In Kentucky and Indiana, judgments are allowed after the homeowner fails to answer a foreclosure lawsuit within 20 days after they are served in-hand or by certified mail with the paperwork. Once a deficiency judgment is awarded, the mortgage lender can seize assets like bank accounts to satisfy the balance of the debt and garnish up to 25% of your wages. Only a Chapter 7 or Chapter 13 Bankruptcy filing can stop that from happening.

While lenders don’t say which homeowners they target for deficiency judgments, analysts believe they are going after homeowners they believe have the funds to make the payments, but choose not to. Many people have considered a strategic default, meaning they stop making payments because of a decline in value.

Many states, however, allow lenders up to 20 years to go after a homeowner for a deficiency judgment, which gives banks a lot of time.

Attorneys who handle foreclosure defense told the newspaper they have seen a drastic increase in judgments as banks have been urged by shareholders to try to make back the money that has been lost. There is also a secondary market for debt, as investors attempt to get the judgments so they can go after borrowers through debt collection agencies or bankruptcy court.

If you need to speak to a Kentucky bankruptcy attorney or Louisville foreclosure defense firm, contact the Schwartz Bankruptcy Law Center at 866-270-4495 for a free and confidential consultation to discuss your rights.

More Blog Entries:

Louisville Still Suffering From Housing Mess, But Bankruptcy Stops Foreclosure: September 7, 2011
Additional Resources:

House Is Gone but Debt Lives On, by Jessica Silver-Greenberg, The Wall Street Journal

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