What is a Deficiency Claim?

A deficiency claim is that portion of a claim secured by a lien on property that exceeds the value of the property. In this case, the creditor is granted a secured interest up to the value of its collateral, while any excess amount of its claim over the value of the collateral is classified as an unsecured claim. This unsecured portion of the claim is the deficiency claim. This is a particular problem for a secured creditor when the court assigns a low value to the creditor’s collateral, since this means that more of its claim is shifted into the unsecured claims classification.

Example of a Deficiency Claim

Elvis owns a Rolls Royce, on which there is a $150,000 car loan from Big Bank. Elvis declares bankruptcy, so Big Bank seizes the car and sells it for $125,000. This leaves a deficiency of $25,000. Big Bank files a deficiency claim of $25,000, which is classified by the bankruptcy court as an unsecured debt.