The Differences of foreclosure and bankruptcy
Foreclosure and bankruptcy are legal actions and both actions will have a negative impact on your credit score and your ability to secure credit in the future. Whether you should allow the bank to foreclosure on your home or file bankruptcy depends on whether you want to keep your home.
Foreclosure allows the mortgage lender or lien holder to repossess your home. You must relinquish ownership of the property and at some point vacate the premises.
Chapter 13 Bankruptcy allows you to avoid foreclosure by filing bankruptcy and creating a repayment plan, which is submitted with you bankruptcy petition, and if approved but the court and your court-appointed trustee, allows you to restructure late mortgage payments and continue to pay the outstanding balance of the mortgage. Filing bankruptcy will not discharge the primary mortgage debt which is secured.
Not only does Chapter 13 Bankruptcy allow you to avoid foreclosure, it will also stop creditor actions and allow you to retain your property after the bankruptcy case is complete, assuming you continue to make payments. Failing to make mortgage payments, either during or after the completion of the bankruptcy plan, allows the courts to dismiss your bankruptcy case and the mortgage lender to foreclosure on the property.
How do I know if I should file bankruptcy or allow the foreclosure?
Prior to making any type of financial decision it is generally a good idea to talk to a bankruptcy lawyer. Whether you decide to allow the mortgage lender to foreclose on your house or you file bankruptcy will depend on your financial goals. Consider the following before deciding which option is worse:
- Bankruptcy allows you to have a fresh financial start. Filing bankruptcy may allow you to discharge your unsecured debts (Chapter 7 Bankruptcy) or restructure your secured and unsecured debt payments, including a mortgage payment (Chapter 13 Bankruptcy).
- If the mortgage is your only debt foreclosure can remove this debt, but you might be responsible for any deficiency in payment after your home is sold. This means you may lose your home and still have a mortgage burden.
- Bankruptcy may allow you to keep your house.
- Bankruptcy will remain on your credit report for 7 to 10 years and foreclosure will remain on your credit report for 7 years.