Bankruptcy or Foreclosure?

Tough times require people to make difficult choices. The loss of a job, an economy that is in recession, rising fuel prices, an illness or an injury can all cause people to have a difficult time paying their bills. Sadly, some hardworking and well meaning people are forced to make the choice between having their home foreclosed or filing bankruptcy. There is no easy answer and no clear choice between foreclosure and bankruptcy. However, there are some things that you should consider before you proceed with either option:
  • Are There Alternatives? Is your mortgage holder willing to negotiate with you to change the terms of your mortgage or allow you to make back payments? It is important to make sure that you speak with your lender and negotiate to the greatest degree possible before entering either foreclosure or bankruptcy.
  • How Long Will My Credit be Affected?   A foreclosure remains on your credit record for 7 years and a bankruptcy for 10 years. Both are looked upon unfavorably by any potential future creditors.
  • Do You Want to Continue to Live in Your Current Home? If you are not committed to remaining in your current home then you may be able to negotiate with your lender to allow you to sell the home. The proceeds from the sale will first go to pay your mortgage holder and other creditors. Any leftover proceeds will be yours.  If you do want to continue to live in your current home and were not able to work out an agreement with your mortgage holder then bankruptcy might be your only alternative. Bankruptcy will in no way guarantee that you can remain in your current home indefinitely. However, it will stay the foreclosure if a formal foreclosure notice has not been issued at the time that you file for bankruptcy. That can buy you a period of months in which you will continue to live in your home while the bankruptcy is completed. Further, if you file for bankruptcy under Chapter 13, the court may allow you to pay your past due amounts over the course of your repayment period. That amount would be in addition to your regular monthly payments.
  • Do You Have Other Assets that You Want to Protect? Foreclosure, unlike bankruptcy, only affects your home. If your home is foreclosed then the home is sold and the proceeds pay off your mortgage. The rest of your assets are not affected by the proceeding. Bankruptcy, on the other hand, can affect all of your assets and obligations.
While there are many negative things associated with bankruptcies and foreclosures, such as the potential loss of your home and the effect on your credit rating, sometimes foreclosures and bankruptcies are necessary. They can relieve you of overwhelming debt and allow you to start over and live your life without the constant stress and worry created by not being able to pay your bills.
So, if you, like many Americans, are facing tough economic times, it is important to consider all of your financial options before making a decision about how to proceed.

The information on this page is meant to provide a general overview of the law. The laws in your state and/or city may deviate significantly from those described here. If you have specific questions related to your situation you should speak with a local attorney.

Additional Foreclosure and Alternatives Articles

Search LawInfo's Foreclosure and Alternatives Resources