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1.4.10 Is the Creditor Barred from Recovering a Deficiency Judgment?

There are a number of restrictions on the creditor’s ability to recover a deficiency judgment. Some states have anti-deficiency statutes that bar deficiency judgments, but usually only for transactions under a certain amount, such as $2000.

The creditor also has the option in some circumstances of accepting the collateral in full satisfaction of the debt (termed “strict foreclosure”), provided that the debtor consents or at least does not object. If the creditor has done so, then it cannot recover a deficiency. In some circumstances, the creditor’s actions, such as using the collateral or junking it, may amount to a strict foreclosure even though the creditor has not taken any formal steps to propose a strict foreclosure.

In addition, a creditor’s violations of Article 9 may bar it from recovering a deficiency judgment. Some jurisdictions adopt the “absolute bar” rule, under which any violation absolutely bars a deficiency judgment. In other jurisdictions, if the creditor violated Article 9, a rebuttable presumption arises that the value of the collateral equaled the amount of the debt and thereby extinguished it.12 A deficiency judgment may also be barred if the creditor did not comply with another state law, such as a retail installment sales act.

  • • Does the state have an anti-deficiency judgment law that applies to the transaction? See § 12.4, infra.
  • • Did the creditor accept the collateral in full satisfaction of the debt, either explicitly or implicitly? See §§ 9.4, 12.5, infra.
  • • Did the creditor’s repossession or resale violate Article 9, so that a deficiency judgment is barred under the absolute bar rule or the rebuttable presumption rule? See § 12.6, infra.
  • • Did the creditor violate any requirements of a state retail installment sales act or other law that might result in losing its right to recover a deficiency judgment? See §§ 12.8.2, 12.8.3, infra.
  • • Is the deficiency judgment barred due to the debtor’s bankruptcy? See Ch. 8, infra.
  • • Is the deficiency judgment barred due to the statute of limitations? See § 12.7, infra.
  • • Is the defendant a cosigner rather than the principal obligor? Cosigners have special rights and defenses under the UCC, the common law, and a Federal Trade Commission rule. See § 12.9, infra.
  • • Is the defendant a victim of coerced debt—a credit-related transaction that arose as a result of the victim’s relationship to an abusive individual? If so, these special circumstances should be taken into account. See § 12.9.8, infra.
  • • Are there counterclaims which the consumer can assert that may exceed the deficiency claim? Consumers have important potential counterclaims for actual and statutory damages under Article 9. In addition, they should consider claims for conversion, breach of warranty, odometer rollback, fraud, civil rights violations, violation of the UCC duty of good faith, unfair and deceptive acts and practices, Truth in Lending violations, usury, and Fair Debt Collection Practices Act violations. See Ch. 13, infra.


  • 12 {12} See § 12.6.3, infra.

    Prior to the adoption of revised Article 9, a few jurisdictions espoused a third rule, the “set-off” rule, under which the debtor’s damages due to the creditor’s non-compliance with Article 9 are merely set off against the debtor’s liability for a deficiency. Revised Article 9 has repudiated this rule even in commercial transactions, making it wholly unjustified in consumer transactions.