Contract Glossary

Deficiency

Definition

The difference between what you owe and what the creditor recovered after seizing and selling your collateral. If you defaulted on a $100,000 loan and the collateral sold for $70,000, the $30,000 gap is the deficiency, and you still owe it.

In Practice

Your business equipment was pledged as collateral on a $75,000 loan. You default, the lender repossesses the equipment and sells it at auction for $45,000. The $30,000 deficiency doesn't disappear, the lender can pursue you for it through a deficiency judgment. Some states limit when lenders can seek deficiency judgments, but most allow them.