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Which Is Worse - Bankruptcy or Foreclosure? It Depends on Your Financial Goals


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The answer to that lies in figuring out what your long-term financial goals are.

If your primary objective is to stay in your house, bankruptcy provides a mechanism for many homeowners to do so.

Because you eliminate much of your debt in a Chapter 7 bankruptcy and are able to create a modification of debt in a Chapter 13, you may find that you have the resources to keep your home.

Filing the petition for bankruptcy also stops the foreclosure action for a time. This delays your eventual removal from the house, if that is your goal.

Which is Worse Bankruptcy or Foreclosure on Your Chances of Getting a Home in the Future?

One of the things to consider is whether you'll want to buy another home in the near future. It's almost impossible to buy another home for at least four years following foreclosure.

The general “rule of thumb" on bankruptcy is that you can get back into a mortgage two years after filing Chapter 13 and one year after filing Chapter 7. However, you will need to be able to show that you'll be better able to handle your finances this time around. If there were extenuating circumstances such as medical bills, that helps too.

Deficiency Judgments: Which is Worse Bankruptcy or Foreclosure?

Another thing to consider is whether there will be a deficiency judgment after foreclosure. If you are “upside down" and owe more than the house is worth, you may end up owing the bank money even after your house is taken away. Laws vary from state to state.

This may put you in a situation where you have to file bankruptcy after foreclosure to eliminate the deficiency judgment.

In that case, you're better off to forestall foreclosure by filing bankruptcy.

When Deciding Which is Worse, Bankruptcy or Foreclosure, Make Sure That You Don't End Up With Both

But there are problems with bankruptcy too. For instance, did you know that many people fall out of Chapter 13 bankruptcy? That means that they're in a worse position than they were before they initiated the proceedings. Often, instead of deciding which is worse: bankruptcy or foreclosure, they find themselves in the worst of both worlds having both on their records.

Further Things to Think About on the Topic of Which is Worse Bankruptcy or Foreclosure

  • If your problem is too much consumer debt rather than an inability to manage your mortgage, choose bankruptcy

  • Bankruptcy stays on your credit report for 10 years, foreclosure for only 7

  • If you abuse the bankruptcy system (for instance doing a “face filing" for the sole purpose of forestalling foreclosure), you can be fined by the courts.

    If you're trying to decide which is worse, bankruptcy or foreclosure, you need to get the new report The Foreclosure Survival Guide which outlines the process of foreclosure and details many options homeowners facing foreclosures have. This free report will help you make smart decisions on whether to allow your home to go into foreclosure or whether to pursue other options. Get your free report today.

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