If you are facing foreclosure you may be wondering whether it would be a better alternative to declare yourself bankrupt or not. One of the main things that you are likely to look at is how each option affects your credit report. Typically foreclosure will stay on your report for up to seven years whereas bankruptcy will stay there for up to ten years. For this reason many people automatically assume that bankruptcy is the worse option to take. However, that is not necessarily the case.
How Foreclosure Differs to Bankruptcy
Foreclosure is forced upon you when you fall behind on your mortgage repayments. It specifically relates to your home and if you lose your home because of it then your chances of getting a mortgage later on will decrease dramatically. However, if you declare yourself bankrupt and lose your home it is not specifically to do with your home and so mortgage lenders may be kinder to you in the future.
It is advisable to try to prevent a foreclosure being ordered in the first place. If you know you are going to have problems paying your mortgage in the near future then tell your lender. Contact them before things start to go wrong and they will try to help you to work something out. It is much better to do this than to hide away and risk the problem getting worse. Lenders will be kinder to you if you are honest and up front about your problems.
Obviously you cannot always prevent a foreclosure from being thrust upon you. So if you are faced with it would it be better to declare yourself bankrupt? Generally the answer is yes. While it may stay on your record for longer, bankruptcy does have a few advantages over foreclosure. Even if you have to lose your home through bankruptcy, you will be assigned somebody who will help you to sell the home and make the most profit. If a foreclosure is ordered then you will have no control over how the house is sold.
Another advantage of bankruptcy is that you may not always have to lose your home. You could arrange to make regular monthly repayments to your lender until the balance owed is fully repaid. Or if you do lose the home then the lender could still decide to let you live there for up to one year after the bankruptcy order. There are different types of bankruptcy that you can file for and the best one to help you with foreclosure is Chapter 13 bankruptcy. This allows you to pay off the debt you owe in instalments rather than wiping it completely.
Overall bankruptcy can help with foreclosure because even if you lose your home, you will still receive more profit from the sale than you would with a foreclosure. It will also look better on your credit report than foreclosure would too.
