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.
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Frequently asked questions about deficiency
In most cases, yes — unless the loan is non-recourse. Non-recourse loans limit the lender to the collateral only. Most small business loans and personal loans are recourse, meaning you're personally liable for any deficiency. Check your loan agreement to know which type you have.
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Create your contractThis content is for informational purposes only and does not constitute legal advice. For contracts with significant financial or legal implications, review by a qualified attorney is recommended.