When is foreclosure better than bankruptcy?

A homeowner who is in dire financial need faces foreclosure vs bankruptcy. No one wants his home foreclosed in the same way that no one wants to file for bankruptcy. But if you are without a choice, you need to balance the pros and cons of each proceeding to know which one is better. Foreclosure or bankruptcy will depend on what are you will to risk.

When you file for bankruptcy, there is a possibility that you can retain your home if you affirm your debt and negotiate for lower mortgage fees from your creditor. This is possible if you have a good bankruptcy lawyer. There is also a possibility that you will still lose your home during the proceeding. However, this is not entirely bad news because you only need to wait for two years to qualify for a new mortgage loan. The downside of a bankruptcy is that it will stay in your credit report for 10 years, giving you higher interest rates when you apply for loans within that period.

In a foreclosure proceeding, you will lose your house and your mortgage paid off. The foreclosure record will also stay in your credit report for only seven years compared to 10 years in a bankruptcy filing. However, a foreclosure carries with it a lot more negative consequences. You cannot obtain a new mortgage for at least four years while lenders take foreclosures more seriously than a bankruptcy. If they have to weigh between two borrowers, a formerly bankrupt individual will get a higher chance of getting approved compared to someone who has had a foreclosed property in the past.