Have you been thinking about filing personal bankruptcy? If so, it’s probable that you’ve also been weighing the effect of that bankruptcy filing on your financial life. One major issue that people are worried about is the possibility of foreclosure, and most important, which will be worse for them, bankruptcy or foreclosure. It’s important to remember however that foreclosure and bankruptcy are very different, and hard to compare. Here are the important issues you’ll want to think about.
A foreclosure is based on the mortgage loan you used to pay for the house, so it is mainly just like another type of secured loan, just like a car loan for example. If you are unable to pay your loan payments, the lender who is secured by your property, the has the right to repossess, or foreclose, on your home and use the funds from a sale to pay the debt you owe. As with failure to pay a car loan, a foreclosure is bad for your overall credit score, and will bring down your score significantly.
When considering bankruptcy however, this is a different situation. Bankruptcy allows you to eliminate or repay multiple debts or set up a repayment plan. Credit reporting agencies won’t tell which is worse for your credit, a foreclosure or bankruptcy, but if you’re in a bad enough position to file bankruptcy, it’s likely your credit is already pretty bad. Thus a bankruptcy likely won’t result in much lower of a credit score.
But here are the issues you want to consider. If you have not been foreclosed yet, and you file bankruptcy, you can still lose your home because the lender can ask the bankruptcy court to permit a sale of your house to pay off your debt. This type of sale would happen in a Chapter 7 bankruptcy, where your debt is discharged, but in a Chapter 13 bankruptcy you might get a chance to continue to make payments under a plan. In a Chapter 13, this type of bankruptcy might help you avoid foreclosure.
As for your credit score, a bankruptcy may not lower your credit score number too much lower, however your bankruptcy filing stays on your credit report for ten years. So with a bankruptcy, in five years you might have a better credit score but lenders could still see your bankruptcy filing from five years ago, and turn you down on that basis. Foreclosure on the other hand is like any other repossession or single bad debt. It stays on your credit report for seven years, but once you restore some good credit after a few years you could once again qualify for credit. It’s important to recognize then that your credit score is not the only thing to consider between bankruptcy and foreclosure.
Before you choose foreclosure or bankruptcy, you should find a competent bankruptcy attorney and a non-profit credit counseling agency to meet with. These agencies can help determine exactly how your income, expenses and debt will be impacted by either foreclosure or bankruptcy. Some people might want to keep their home at all costs, while others might consider it important to protect their credit score. Only by talking to a professional can you find the right choice for you.
Are you trying to determine which is worse, bankruptcy or foreclosure? Find bankruptcy advice at Bankruptcy Help Online.
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