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An individual having to choose between a bankruptcy and a foreclosure often has to make a choice between the proverbial devil and the deep sea. It will pay off big time if you know the pros and cons of each. The ultimate objective of both is to get out of debt and get set on a path to new financial growth and credit repair. You should be aware of which path will enable you to achieve your objective with as much saving of time and money as possible – because you are going to need both when you set out to rebuild your finances from scratch.
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Pros of foreclosure
• If at all this can be considered a pro – a foreclosure stays on your credit report as a negative mark for only seven years. Moreover, you can work to improve your credit score and qualify for a mortgage again in as few as four years.
• You are not bankrupt – the foreclosure may leave you with some assets and liquidity to start your rebuilding process afresh.
• In certain states like California, if you choose to move away from your home the lender cannot then contact you for further payments.
Cons of foreclosure
• You lose your home.
• You still have to pay income tax on the balance mortgage loan amount.
• Getting any kind of loan refinance is that much more difficult with a foreclosure because you have lost one of your most valuable assets – your home. You may be asked to make at least a 10% downpayment in order to qualify for any mortgage loan.
• There is a distinct possibility of a deficiency judgment, you could face a fine for trying to stall a bankruptcy and in the end you could have both on your hands – a bankruptcy as well as a foreclosure.
Pros of bankruptcy
• If you qualify for a Chapter 7 bankruptcy, you are allowed to keep any equity you own in your property.
• A Chapter 13 bankruptcy will enable you to work out a new debt repayment strategy with your creditors.
• If you file for bankruptcy, any move by the bank to foreclose your property will be stopped.
• It is easier to qualify for a mortgage loan with a bankruptcy record so long as you can keep your post-bankruptcy credit record clean.
Cons of bankruptcy
• If the bankruptcy is recent you will find it very difficult to get a mortgage loan.
• You will most assuredly lose all your credit cards – so no immediate credit.
• You do not rid yourself of all loans – student loans and back taxes are not discharged. You are also obliged to pay child support and alimony.
• You do not get to keep any property pledged as collateral against a loan unless of course you repay the loan.
• You have to wait for a period of six years before filing for bankruptcy under a given chapter.
• A bankruptcy stays on your credit report for a decade.
