Bankruptcy Or Foreclosure: Which One Is The Best Way Out
If You Cannot Afford Your Mortgage?
Author: Dean Williams

There are no easy decisions when facing foreclosure. If you are
trying to decide between bankruptcy and foreclosure there are
several considerations that you should keep 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 do not. You cannot file a
Chapter 7 bankruptcy for your home loan. Chapter 7 is reserved
strictly for unsecured debt such as credit cards, personal
loans, and store cards. 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 will have both a
foreclosure and bankruptcy on your credit history, which will
make life very ugly for the first four years after filing.

Chapter 13 bankruptcy will stop foreclosure dead in its tracks.
Under Chapter 13, you reorganized your debt and consent to a
reasonable repayment plan mandated by the courts. You cannot
file Chapter 13 unless your income is great 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 will have to continue to pay the lender in addition to any
amount that you missed during the proceedings or leading up to
the proceedings. If you fall behind on your mortgage payments
after securing a Chapter 13, then the mortgage company will ask
the court to lift the stay and proceed with a foreclosure and
you may find your home on the auction block in a matter of
weeks. A homeowner can file an individual bankruptcy in only
their name and it will not affect their spouse's credit so long
as their spouse did not sign the mortgage.

Should you decide to proceed with a foreclosure, keep in mind
that it will leave you with a deficiency balance that you must
repay unless you have 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 prevent you from
obtaining another government backed loan, even if it is just a
refinance.

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

To learn more about bankruptcy and foreclosure, watch my free
video, "13 Ways To Avoid Foreclosure" at:
www.foreclosure-help-book.com. This website has all the
resources you'll need to stop foreclosure on your own, without
paying an agency thousands of dollars or getting scammed by con
artists. The only way you can save your home is if you take
action now, so don't become another statistic by sticking you
head in the sand. Get on the path to save your home.


About The Author: Dean Williams is the author of "The
Foreclosure Solutions Manual" a step-by-step guide that outlines
over 20 ways you can stop or avoid foreclosure and save your
home. To find out more information please visit:
http://www.foreclosure-help-book.com