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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
HOW LONG CAN I DO ANOTHER BK NOT THAT I WANT TO.MY HOUSE IS IN FORECLOSIER AND 14000 CREDIT CARD DEBT AND HAVE 2 MOR ON A LEASED CAR.MY CONDITION IS WORSENING AND STREE HURT ME
Posted on: 20th Jan, 2009 01:53 am
hi ae,

as far as i know, the time limit between chapter 7 filings is 8 years from the time of discharge whereas the time limit for filing a chapter 13 bankruptcy after a chapter 7 discharge is 4 years.

thanks
Posted on: 20th Jan, 2009 10:43 pm
how does it affect ur credit if you surrender your house to the bank after filing for chapter 13
Posted on: 01st Feb, 2009 07:09 pm
You mean you're trying to do a deed in lieu? Well, it will reduce your credit score by almost 250 points. But let me know your situation in details. Are you finding it difficult paying under Chapter 13 plan?
Posted on: 08th Feb, 2009 12:00 am
I just gotout of chapter 13 bk two weeks ago. In the meantime i have been laid off and can't afford mortage payments. How long before i coiuld file another chapter 13. :
Posted on: 17th Feb, 2009 01:04 pm
Hi bill,

As far as I know, you cannot file chapter 13 before 7 years. As you cannot make the mortgage payments, you should better contact the lender and check out if he can offer you some other options.
Posted on: 17th Feb, 2009 10:34 pm
HE WANTS ME TO FALL INTO BANKRUPTCY BECAUSE, WE HAVE A HOME TOGETHER, AND MY NAME IS ON THE HOME TITLE. hE IS TRYING TO DO IT BEFORE THE DIVORCE IS FINAL. HE SAID THAT BECAUSE, HE HAS TO PAY ME CHILD SUPPORT. THAT i AM GOING TO GO DOWN WITH HIM TOO IN BANKRUPTCY. i HAVE NOT LIVED IN THAT HOME SINCE I FILLED FOR DIVORCE IN NOV.1 2009. RIGHT NOW HE THINKIING OF NOT PAYING FOR HIS CREDIT CARDS AND GOING FOR FORECLOSER ON THE HOUSE. MY QUESTION IS AM I ALSO GOING TO SINK INTO BANKRUPTCY WITH HIM OR WHAT?
Posted on: 21st Feb, 2009 01:18 pm
my husband and i owed 55thousand of credit card. our job right cut our overtime. we live with our overtime, we lose 2thousands of overtime. we have a rental home but our renters always late and i am afraid one of them
got layoff. we also behind two months of our mortgage. now can i file bankruptcy 7 if you two houses? or should i go chapter 13. i dont know what
to do. i want to keep my 2 homes. what should i do?
Posted on: 21st Feb, 2009 03:40 pm
to anonymous,
yes you will sink also. im sorry to say but anything joint account both
of you will go down. that takes 10 years til it will clear your credit report. but
if you both have kids together then most likely you will get the house because
you need the house for the kids. the judge will likely give you the house. eventhough you are not living in the house since you left you are still responsible to pay also. and you will look good to the judge. the credit
card will we cant do anytthing if will file sometimes but definitely you will
sink too but the good thing is you will get the house that a good thing. also,
you left with your kids? i hope you did otherwise you will look bad to the
judge. he will say you ABANDONED your family. so go back home and get
some help see a lawyer. you pay 100 dollars for an hr counseling and when you see one make sure you have all the questions you need, write
them down so you wont forget. better move girl.
Posted on: 21st Feb, 2009 04:06 pm
Good afternoon, I wanted to understand how this process works. we are $20k in arrears right now and we are seeing an attorney on Thursday to determine if we would qualify for a 13. My confusion comes in as to as you mentioned above, we would have 3-5 years to pay back creditors, does this include the lender? are they included in the BK and we pay our regular payment to them plus the payment to the trustee? Or is our payment included with the 13 and we pay everything through the trustee?

Thanks.
Posted on: 24th Feb, 2009 01:08 pm
hi hearts,

in chapter 13 bankruptcy, you are not required to sell off your assets for debt payoff. you will have to make payments under the supervision of the court. this will help you in retaining the property and also paying off your mortgage dues according to the new repayment plan given by the lender.

to know more about chapter 13 bankruptcy, check out the following page:
http://www.mortgagefit.com/bankruptcy/chapter13.html

take care.
Posted on: 25th Feb, 2009 02:03 am
When can I get a home loan if I have a discharged 7-2007 chapter 7 bk ( on my credit report) and a foreclosure on my bk papers ( foreclosure not on credit report because I was only on title and not on loan)? I'm considering FHA but don't know my waiting period ( 2 or 3 years?)
Posted on: 07th Mar, 2009 06:43 pm
Hi yolandahoward,

You can get an FHA loan 2 years after getting discharged of the bankruptcy. However, for conventional loans the waiting period is 4 years after discharge.

Feel free to ask further queries.

Thanks,

Jerry
Posted on: 09th Mar, 2009 05:34 am
We took a 2nd mortgage back in about 2004 our monthly payments were about $250.00, 2nd mortgage was bought out by another company and now our payments are like $559.00 a month, which we cannot aford, how can the payments change and go up so high? It was tight with $250.00 but $559.00 is unreal, since we signed a contract should we not stay at the $250.00 amount? I do not understand how this could happen?

Thank you.
Posted on: 13th Mar, 2009 10:21 am
Someone told me I might be able to get a loan modification by first getting a mortgage audit. My friend said MFI-Miami.com (http://www.mfi-miami.com) does mortgage fraud investigations and might be able to help. What are the advantages and disadvantages of getting this type of service?

Thank in advance for your help.
Posted on: 17th Mar, 2009 08:24 am
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