It is not easy to choose between bankruptcy and foreclosure. Both options carry with them serious, long-term consequences. Thus, it is imperative to consult an attorney knowledgeable in these areas when deciding between foreclosure vs bankruptcy.
Weighing the Bankruptcy Option
Bankruptcy is never welcomed. It carries with it several, significant consequences in terms of individuals’ credit record, in addition to other long-term issues. However, under certain circumstances, Bankruptcy can be a valid option. The following is a list of pros and cons regarding bankruptcy.
Pros
- Chapter 7 bankruptcy allows you to retain equity in your home, if you qualify for this option.
- Further, filing for bankruptcy stops the foreclosure action on your house, and even if you lose your home during bankruptcy you may qualify for a new mortgage within 2 years of filing for bankruptcy, depending on your credit history since the filing.
Cons
- However, some people file for chapter 13 actually fall out of bankruptcy, meaning they lose court protection from their creditors, and then may lose their home through foreclosure.
- Also filing for bankruptcy for the sole purpose of delaying foreclosure could result in fines from the court.
- Finally, as stated above, bankruptcy stays on your records for 10 years as opposed to 7 years with foreclosure.
Weighing the Foreclosure Option
Much like Bankruptcy, foreclosure is not a matter to be taken lightly. It results in the loss of your home and can negatively impact your credit. However, as noted above, under certain circumstance, foreclosure can offer some benefits. The following is a list of pros and cons to consider when one is facing foreclosure.
Pros
- One of the positive aspects of foreclosure in comparison is the length of time it stays on your credit report. Foreclosure will remain on your credit report for 7 years, while bankruptcy remains for 10 years.
Cons
- However, this “benefit” should be tempered with the fact that lenders will look at a foreclosure a bit more seriously than a bankruptcy that did not include your home.
- Another negative aspect to foreclosure is that you often cannot get a new mortgage for at least 4 years.
- Additionally, the sale of your house could result in a deficiency judgment if it does not cover what you owe, which could result in you having to file bankruptcy even after the foreclosure.
Seeking Legal Help
Deciding between foreclosure and Bankruptcy can feel like a Hobson’s choice, and it is certainly not one to be taken lightly. Before making a decision, it is important to consult knowledgeable legal counsel to advise you on this difficult decision.
