Bankruptcy Vs Foreclosure Uncovered

Mar 17th, 2014 | By | Category: Guide

There are no easy decisions when facing foreclosure. If you’re trying to decide between bankruptcy and foreclosure there are several considerations that you should bear in mind. Both bankruptcy and foreclosure will significantly lower your credit score by 200 to 300 points. A foreclosure will stay on your credit report for 7 years, Chapter 7 bankruptcy will remain for 10 years, and Chapter 13 for 7 years if you follow the agreed upon repayment plan, 10 years if you’re not. You cannot file a Chapter 7 bankruptcy for your home loan. Chapter 7 is reserved strictly for unsecured debt such as credit cards, store cards, and personal loans. You may use a Chapter 7 bankruptcy to free up money so that you may repay back payments on your home or establish a repayment plan with your mortgage company. If you allow your home to be foreclosed on, the lender may still come after you for a ‘deficiency balance’. This balance is what is owed to lender after your home is auctioned at the courthouse. But, following the auction, a Chapter 7 bankruptcy can be filed to clear you of this obligation. However, you’ll have both a foreclosure and bankruptcy on your credit history. This will make life very ugly for the initial four years after filing.

Chapter 13 bankruptcy will stop foreclosure dead in its tracks. You reorganized your debt and consent to a reasonable repayment plan prescribed by the courts under Chapter 13. You cannot file Chapter 13 unless your income is large enough to pay all priority and secured debts, and 25% of your unsecured debt over a 5 year period. Additionally, your mortgage may rise because you’ll have to continue to give the lender in addition to any amount that you missed during the proceedings or that led to the proceedings. If you fall behind on your mortgage payments after securing a Chapter 13, then the mortgage company will request the court to lift the stay and continue with a foreclosure and you may find your home on the auction block in the space of a few weeks. A homeowner can file an individual bankruptcy in only their name and it won’t affect their spouse’s credit so provided that their spouse didn’t sign the mortgage.

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Chapter 13 bankruptcy refers to personal bankruptcy. It may stop foreclosure and act as a foreclosure defense to provide you time to repay your secured debts (like your home mortgage or car loans). This Chapter is also referred to as the wage earner’s bankruptcy. If you make above the state median income, you may have to file Chapter 13 instead of Chapter 7. Also, if your personal assets are involved with your business assets, as they’re if you have a sole proprietorship, you can avoid issues such as losing your house if you file for Chapter 13 instead of Chapter 7.

Should you decide to go ahead with a foreclosure, keep in mind the fact that it will leave you with a deficiency balance that you must repay unless you get a non-recourse loan. Furthermore, the forgiven debt is considered taxable income by the IRS. If you have a FHA or VA loan, a foreclosure will keep you from obtaining another government backed loan, even if it’s just a refinance.

Many people are currently asking the question  Which is better, an emergency foreclosure loan, or a Bankruptcy Bailout Loan? The truth is, there are several pros and cons to each and every one of these options. Learning the specifics is extremely important when making a decision, as it will better guide you into choosing what’s best for your personal financial situation. Naturally, if you’re facing foreclosure, you’ll want to be in to obtaining an emergency foreclosure loan. If you’re on the brink of declaring bankruptcy, you’re probably best off with obtaining information about a Bankruptcy Bailout loan.

An emergency foreclosure loan is usually granted by a government-owned or other organization. These loans are specifically intended to help people facing foreclosure, though it is important that you meet a few key conditions. Not everyone will qualify for an emergency foreclosure loan, so it is very important to do some research to find out if you meet the specific requirements.

Before you make any decision you should seek the opinion of an experience bankruptcy attorney and consult with a fee-based financial advisor. There are other options to foreclosure and bankruptcy as a deed-in-place of foreclosure, short sale, lender workout, fractional sale of your home, entering into a subject-to with an investor, and rental.


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