When a homeowner is facing significant problems paying their mortgage, they may sometimes have to choose between one of two common options - foreclosure vs bankruptcy. A common misconception is that the two are the same, but in actual fact, they are quite different processes. In a foreclosure, the homeowner loses possession of their property after they have missed a significant number of payments. When ownership of the home is transferred, it will be sold in order to repay the debt owed on the mortgage After taking place, the foreclosure will be on the homeowner's credit report for 7 years, compared to the 10 years of a bankruptcy.

For bankruptcies, there are two different types that can be used - Chapter 7 and Chapter 13, both of which will have very negative effects on credit. Most homeowners facing foreclosure file Chapter 13, which keeps open the possibility for them to remain in possession of the home. In a Chapter 13, if you qualify, you'll be fitted with a repayment plan, usually of between 3 and 5 years. In the event that the agreed payments are not made, however, foreclosure can still be filed.