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Foreclosure vs bankruptcy - Which is right for you?

Posted on: 20th Mar, 2008 03:11 am
if you're behind on your mortgage, and there aren't any alternatives available to help you get out of the problem, you'll have to decide between foreclosure and bankruptcy chapter 13.

when to file chapter 13 and why

when you have to decide upon foreclosure vs bankruptcy, the first thing to ask yourself is whether you'd like to keep the house. if you're keen on keeping the house, filing for chapter13 makes sense. this helps you to pay off all or part of the mortgage, especially the amount by which you're behind on the loan. the payoff period in chapter 13 is quite short, that is within 3-5 years. however, you'll have to go through credit counseling session within 6 months prior to the date of filing bankruptcy. then you'll have to pass through the means test which confirms whether you're eligible for chapter 13.

more about chapter 13

when you file for chapter 13, you must create a repayment plan and submit it with your petition. the court appointed trustee will then review the repayment plan with your attorney and your creditors. the trustee will then negotiate with your attorney and lender if any alterations to the repayment plan are needed.

once your bankruptcy petition has been filed, your lender is barred from suing you in foreclosure during the bankruptcy proceeding and for at least 30 days after your case has been closed.

the question of foreclosing at the end of the 3-5 year period doesn't arise if you have cleared the debt and are able to continue paying down the outstanding balance. however, you will have to wait 1-2 years after your bankruptcy case has been finalized to try for a refinance.

foreclosure vs bankruptcy chapter 13

chapter 13 shows you've tried to clear debts instead of avoiding them, and this has a more positive impact on your credit report than foreclosure does. however, if you fail to reorganize your debts and catch up with the payments, the bank is likely to foreclose after your bankruptcy, and then you'll have both bankruptcy and foreclosure on your credit. so, you shouldn't miss any payments under the chapter 13 plan or the court will dismiss your case and then you'll have no option but to go through a foreclosure.

another positive aspect of chapter 13 is that it helps you keep your home. but when you end up in foreclosure, you may lose the house and if the house doesn't sell for the total amount of the loan, the lender will file a deficiency judgment. this will be reported on your credit report and is likely to affect your credit.

there are tax issues involved with deficiencies. if the lender forgives the deficiency you will have to report the forgiven amount on your federal income taxes. however, even though you report that the deficiency was forgiven, does not mean you will have to pay taxes on it. as of 2009, the irs does not require you to pay income tax on money forgiven due to a foreclosure.

credit effects - foreclosure vs bankruptcy

once you file bankruptcy, the creditor/lender can no longer sue you to collect on a debt until the it has been discharged. once it has been discharged, you can rebuild your credit in 2 years. by the time you get served with the summons for foreclosure, your credit score has already taken a hit. by the time your lender takes possession of your home after the sheriff's sale, you will be facing at least another 5 years of rebuilding your credit.

bankruptcy stays on your report for 7 years, but it doesn't affect your credit rating after the initial hit. the best thing is, since you get an automatic stay from collection activities after you file, your credit score will freeze until the bankruptcy process is complete. so, it's better to have a 650 score with bankruptcy instead of a 480 score and a foreclosure.

bankruptcy is an option that will help you to avoid foreclosure. but when it comes to deciding on foreclosure vs bankruptcy, you have to decide which option will work better in your particular situation. so, the best thing to do is to contact your lender and start to negotiate a loan modification as soon as you realize you cannot afford your current mortgage payments any longer.

related forum discussions
This is great!Now I fully understand what you mean by taking it from Start to Profit and have a better road map for doing it.

[URL Deleted as per forum rules. Thanks.]
Posted on: 22nd Mar, 2011 03:43 am
This is great!Now I fully understand what you mean by taking it from Start to Profit and have a better road map for doing it.A Chapter 13 Bankruptcy is a solution to the problem for many people who have regular income and just need some extra time to catch up on the mortgage payments that they missed.

[URL Deleted as per forum rules. Thanks.]
Posted on: 13th Apr, 2011 11:39 pm
credit scores are above 800-in a home that is appraised for more than a buyer in this area is willing to pay and don't have a buyer that is willing to pay what is owed on house even though amount is more than 100,000.00 less than appraisal-how do we get out of this which we no longer want to live in-really too much house for us-
Posted on: 01st May, 2011 03:32 pm
hi peaches,

if you're facing problems in paying off the mortgage, then you can contact the lender and apply for a deed in lieu of foreclosure in order to get rid of the property. to know more about deed in lieu of foreclosure, take a look at the given page:
Posted on: 01st May, 2011 11:29 pm
Sincerely neither option is going to be easy. Generally, a foreclosure will remain on your credit report for 7 years, while a bankruptcy remains for 10 years. But that doesnt mean foreclosure is necessarily the better option.

Before you accept that foreclosure is a foregone conclusion, if possible try to avoid it. If youe having trouble making payments, contact your lender before the process goes any further. Even if youe gotten an official notice of default, saying youre several months behind, you still have time before the formal foreclosure process begins.
Posted on: 21st May, 2011 10:25 am
bankruptcy7 and need to rent asap where do we go? funny the legal rep did not mention this part of starting over as well as how, where can my family be accepted as a renter? tks for all i've read so far. il
Posted on: 04th Jul, 2011 12:04 am
Hi ajr!

Welcome to forums!

This is very difficult to tell as to where will you and your family be able to rent a home. I will suggest you to contact your friends and relatives and check out if they can help you in finding a home to rent.

Feel free to ask if you've further queries.

Posted on: 04th Jul, 2011 09:40 pm
AJR, you may want to seek out a housing counselor (look up on FHA site at .gov). There you may find the assistance you need, and at the very least, you will be favored with support and beneficial advice no matter what.
Posted on: 05th Jul, 2011 07:41 am
Who should I talk to bankruptcy lawyer, a financial advisor, or real estate attorney?
Posted on: 16th Sep, 2011 03:08 pm
hi confusedn,

if you're filing bankruptcy, then you should speak to a bankruptcy attorney. if you have any financial issues which you want to resolve, then you should speak to a financial advisor and if you have any issues with your real estate, then it's better to speak to a real estate attorney.

Posted on: 18th Sep, 2011 11:47 pm
confusedn! i think you should talk to real estate attorney!
Posted on: 21st Jan, 2012 07:55 am
Hi confusedn,

It is all depending on your current financial position. if you are sure you can able to manage all your creditor - seeks Financial advisors help and take good advise....

Other wise you can approach Banckruptcy attorney for further proceedings...but it is good to avoid filing banckruptcy if you are looking for any loan(s) in near future...
Posted on: 15th Jun, 2012 07:53 am
after being laid off in mortgager would not modify or refinance dec of 2011 it was sold to anther company sls..... and i had completed the short sale process required to do deed in lieu....just found out that was question....i dont want to keep the house cant afford to keep it and fix it up at same time{114yr old house} due to lay off....would bankruptcy or foreclosure be my best choice
Posted on: 19th Feb, 2013 12:07 pm
hi david!

welcome to forums!

you can apply once again for a deed in lieu of foreclosure. if you can convince the lender, then you will be able to sell off the property. filing bankruptcy or going for foreclosure won't be a good option.

feel free to ask if you've further queries.

Posted on: 21st Feb, 2013 10:50 pm
handling charges 0.6% of the transfer amount, a minimum fee of $ 5, limit 50. Even so, transfer 10,000 yuan fee put as much as $ 50. This cost is much higher than originally Merchants Bank charges 2 yuan each. and consumers are most concerned about is that after the general promotion of super online banking, the bank will not raise fees?
Posted on: 18th Sep, 2014 02:23 pm
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