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When you really get behind on your mortgage payments, you are faced with some tough choices. Should you opt for foreclosure or bankruptcy? Neither option is particularly attractive, but sometimes you have to choose the lesser of two evils. Each option has drawbacks of course, but depending on your situation, one might be better than the other. Here are a few things to consider when you must choose between foreclosure and bankruptcy.
Your credit report is one of the most important things you have when it comes to lending. Your credit report stays with you forever and lenders will be able to look at it whenever you need something. Borrowing money for a house, car, boat, student loan, or anything will involve a look at your report. Even applying for a job or an apartment can also be affected by your credit. Therefore, the cleaner you can keep your record, the better off you'll be.
In regard to foreclosure vs. bankruptcy, both will affect your report negatively, but differently. A foreclosure will stay on your record for about seven years while a bankruptcy will stay there for ten. So the foreclosure will go away a little bit quicker. Either way, you're not going to be buying anything big on credit for a while.
Severity of Foreclosure
Although the foreclosure will be stricken from the record sooner than a bankruptcy, that does not necessarily mean it's the best choice. If you try to buy another house after a foreclosure, mortgage lenders that want to work with you will be few and far between. They take foreclosures very serious. If you could not handle a mortgage the first time, why would you be able to handle it the second time? Did you really change enough to gamble a few hundred thousand dollars on?
When you file for bankruptcy and it does not involve a house, lenders will be more lenient with this than they would with a foreclosure. They will understand that you made some bad choices and probably racked up too much debt. However, when you get your house involved in the process, that is another story. You may never be able to get another mortgage after a foreclosure. Therefore, if owning a home is still in your future plans, you'll want to do everything you can to avoid foreclosure.
If you decide to avoid foreclosure and opt for bankruptcy, there are a number of options that you can take. There are several different types of bankruptcy and choosing the best one for your situation could be tough. Some bankruptcies allow for you to keep your house and just lose everything else. This type of bankruptcy might be the best option for you, however, it will affect your ability to buy other things in the future. You might be able to keep the house, but if you want to buy a new car or get a new credit card, you might be out of luck.
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- 3 Factors that Can Negatively Affect Your Mortgage Application
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- Should You Refinance? Make Sure the Timing is Right
- How to Get Approved for an FHA Loan despite Bad Credit