What are the advantages of filing bankruptcy instead of foreclosure?

Foreclosure vs. Bankruptcy – It is a tough decision for any homeowner. However filing for bankruptcy instead of foreclosure has some advantages.

Bankruptcy law has a provision for homestead exemption. So under certain circumstances, you may be able to hold on to your home if you file for bankruptcy under chapter 7. If you file for bankruptcy under chapter 13, then you will be able to retain your home as long as you make the payments according to your payment plan. In foreclosure you will loose your home. In a chapter 13 bankruptcy you may be able to cram down the mortgage under certain circumstance.

One disadvantage of filing for bankruptcy over foreclosure is that a bankruptcy will remain on your credit report for 10 years whereas foreclosure will remain on your credit report for 7 years. But in case of bankruptcy there is a silver lining. From a lender’s point of view a person who has received a bankruptcy discharge is a more secure borrower than a person who has been through foreclosure. When someone receives a discharge in bankruptcy, it means that he or she has accepted his or her financial condition and taken steps to pay back his or her creditors. Once a person is discharged, the lender knows that the collateral will be safe and the lender can reclaim the collateral if the borrower defaults.

A foreclosure can result in a tax liability. The IRS will send you a Form 1099C for the amount realized from the foreclosure sale.

Consult with an experienced foreclosure lawyer to know the advantages of filing for bankruptcy instead of foreclosure.