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Choosing Between Bankruptcy and Foreclosure

May 10th, 2018 at 9:04 am

foreclosureThe decision between filing for bankruptcy or foreclosing on your home is stressful. Neither is optimal when it comes to the immediate financial impact to your credit score, however, neither are late payments. Bankruptcy stays on your credit report for 10 years, while foreclosure typically rolls off in seven years. But, before you give in to losing your home, there are a few details worth considering.

Saving the Home

First, you must decide if you want to save the home. If you are behind by a month or two, contact your lender. The foreclosure process is expensive for banks. In many cases, your lender will work with you. Options to consider include:

  • Make up the late payments;
  • Restructure the loan; or
  • Request a forbearance.

The Foreclosure Option

First, consider that foreclosure is very serious to future mortgage lenders, more than a bankruptcy that did not include the house. Additionally, foreclosure will drop your credit score by 200 or 300 points. Discuss the option of a short sale instead of foreclosure with your lender. With this option, the house is worth less than the principal balance of the loan, in which case, you may owe the remaining balance. In many situations, banks waive this difference. If a short sale is not an option, some banks accept “deed in lieu of foreclosure,” where you turn the house over to the lender and owe nothing. Explore these opportunities with your lender

How Bankruptcy Can Help

There are many options when filing for bankruptcy, each with unique benefits to suit your needs. Because you own a home and have income, Chapter 13 will probably be your best option. Rather than liquidating everything, Chapter 13 allows you to restructure your debt. As soon as you file, an automatic stay is placed on all accounts, effectively stopping all debt collection attempts. The stay also halts foreclosure proceedings, which may help you catch up on payments. Next, all of the creditor and lenders then convene with an appointed trustee to create a payment plan to repay the debt. This option allows you to keep your assets, including your home, and eventually get caught up on your mortgage.

Ask an Attorney

Mortgage lenders and collection agencies send correspondence that is intimidating and overwhelming. The calls and other communication can stop now. You can begin looking forward to a brighter financial future today. Discover if bankruptcy is the right solution for you by calling a New Braunfels, TX bankruptcy attorney. The Law Offices of Chance M. McGhee will take the time to carefully examine the details of your case and give you honest feedback on which bankruptcy option is best for you. Call 210-342-3400 today to schedule your free, no-obligation consult.

 

Sources:

http://www.nbcnews.com/id/21478416/ns/business-answer_desk/t/which-worse-foreclosure-or-bankruptcy/#.WuvfQDGG_IU

http://www.txs.uscourts.gov/node

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