When you go through a foreclosure, lenders can sometimes come after you for the amount that they are unable to recover through a foreclosure auction. When this happens, the court could issue a judgment in the lender's favor against you. At that point, any money that you have on hand could be fair game to the creditor.
Deficiency Judgments
If you have a recourse mortgage, your lender can come after you in the event of a foreclosure. A recourse mortgage is a loan that allows lenders to take further legal action on top of simply foreclosing on the property. By comparison, with a non-recourse mortgage, the lender can only take back the house and is not allowed to take further action against the homeowner. With a recourse mortgage, after the lender forecloses on your home, it will be sold at a foreclosure auction. If the house is not sold for the amount that you owed on your mortgage, the lender can then sue you for the difference. Once the lender files a civil lawsuit against you, it can obtain a deficiency judgment and come after you for the money you owe.
Collecting the Money
After the lender gets a deficiency judgment against you, several means can be used to try to collect the money that you owe. You will have a certain amount of time after the judgment is issued to pay it. Then if you are unable to pay the judgment, the lender will use other means such as wage garnishment or a bank levy to collect. Wage garnishment involves taking money out of your paycheck directly from your employer while a levy can involve taking your property or money in your bank account.
Levying Bank Account
If you have money from an accident settlement in your bank account, it is fair game for a creditor to claim it in a bank account levy. Once an order for a levy has been issued, the creditor can take most of the money in your account to repay the debt. There are no restrictions about taking money from an accident settlement. Creditors also do not have any limits on how much money can be taken out of your bank account for a levy.
What to Do
If you are faced with this situation, you could lose most of the money in your bank account. To avoid this problem, you could consider working out a payment arrangement with the lender so that he will not simply levy your account. Another option to consider is filing for bankruptcy. If you file for bankruptcy, you can stop any garnishments or levies from occurring. This should only be used as a last resort as it can significantly damage your credit.
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