- Personal Finance
Bankruptcy vs Foreclosure: Benefits of Each
There are many factors to consider when looking at bankruptcy vs foreclosure. Each has their own benefits and drawbacks. Here are some of the benefits of each.
Bankruptcy Benefit: Clean Start
When you file bankruptcy, you get a chance to essentially wipe clean your financial slate. If you have significant debt beyond your mortgage on the house, this can be a great way to start over again. If you qualify for a chapter 7 bankruptcy, it will eliminate most of your debt. There are certain types of debt that are not dischargeable in a bankruptcy so contact a bankruptcy attorney to get details on what those are. The key to getting a fresh start though is finding a way to think differently about money and about how you budget your finances.
Foreclosure Benefit: Removing the Mortgage
When you look at bankruptcy vs foreclosure, consider if your primary financial problem is the mortgage on your house. If you do not have significant other debt, foreclosure is likely a better option for you than bankruptcy. Foreclosure will remove the financial burden of the mortgage and allow you to find a place to live that you can afford.
Bankruptcy Benefit: Possibility to Keep Your House
If you file a chapter 13 bankruptcy, you have the opportunity to keep your home. If you want to keep the home and could afford to keep it if the payments were lower, a chapter 13 bankruptcy might be the best option. What typically happens in this type of bankruptcy is that all of your current debt is included in the bankruptcy. After that point, you will typically have a set payment that you must make to a bankruptcy trustee on a regular basis.
Foreclosure Benefit: Less Time on Your Credit
In looking at bankruptcy vs foreclosure, it is important to note that foreclosure will also last less time on your credit than bankruptcy. Foreclosure will remain on your credit for 7 years and bankruptcy for 10 years. However, if you have significant other debt that you are delinquent on following your foreclosure, your credit will likely not look much better than if you had filed bankruptcy.
It is important to look at your entire financial picture before making a final decision on bankruptcy vs foreclosure. Your income level and other assets should also factor into your decision. Many bankruptcy attorneys will give you a free initial consultation so it is a good idea to sit down with one before you decide what to do.
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