Should You Choose Bankruptcy Over Foreclosure?
When you are behind on your home mortgage payments and nothing has worked, is bankruptcy the answer? Although bankruptcy is usually considered as the last option to deal with debt problems, declaring bankruptcy to hold on to your home could be a wise decision in certain situations. It allows you to keep a hold of your assets including your home while working out a repayment program. However, it may require that you give up certain assets you are not ready to let go of, such as your savings and other investments. If that wasn’t enough, the stigma of “bankruptcy” will last on your credit report for as long as 10 years, while foreclosure remains for only 7 years.
Sometimes, however, it is better to go for bankruptcy instead of foreclosure. If you are seriously considering filing for bankruptcy, it’s necessary for you to go over your options with a legal professional. Always seeking professional advices from a reputable attorney. He or she will be able to guide you through the complicated legal process.
File for Chapter 13 bankruptcy:
This is feasible if you want to keep the creditors at bay and avoid foreclosure. Chapter 13 bankruptcy doesn’t actually wipe out all of your debt, but it does provide you a temporary fix for at least several months, until the court-ordered 3-to-5-year repayment option is finalized. This option is more suited for those who have had a temporary loss of income or a decline in their household cash flow.
It is important for you to be able to pay off your home mortgage payment as well as the amount outstanding while filing for Chapter 13 bankruptcy to avoid foreclosure. Sometimes you may even be able to work out a loan modification to reduce the amount of mortgage payment and arrears.
File for Chapter 7 bankruptcy:
Another type of bankruptcy is Chapter 7. This is rarely used when people want to avoid a foreclosure or loss of secured assets. It will wipe clean the unsecured debts but also the assets associated with secured debts.
Chapter 7, however, could be a great option if you are trying to eliminate your secondary lienholders while going through foreclosure. While your home is no longer your home, you may no longer have to make payments to those lenders. This works in some states but not all. Consulting with a local bankruptcy lawyer will provide you with greater details on what is or is not allowed in your particular state.
As you may know, both types of bankruptcy will have negative impact on your credit score. The record of bankruptcy will remain on your credit report for 10 years. However, some lenders may still approach you if you have filed for bankruptcy previously. You may even receive new credit cards (with higher interest rates and stricter conditions) within the 10 years after you file for bankruptcy. And you have to understand bankruptcy doesn’t put an end to all of your debt problems. Some debts cannot be eliminated such as child support, student loans, alimony and others. So you should discuss with an attorney who specializes in bankruptcy to better understand the whole process and consequences of bankruptcy vs. foreclosures and make an informed decision when it comes to pick the best debt solution for you.
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