Foreclosure vs. Bankruptcy and Your Credit

I was recently contacted by someone who was losing her house to foreclosure. It seems that the bank was not very responsive to her attempts to contact them and work something out. The circumstances of her late payments had changed and she now had the ability to pay and wanted to find out how to save herself from foreclosure. She had been trying for four months to get information and help from her lender but to no avail. She is now in a position where she is considering bankruptcy in order to save herself from the impending foreclosure. F oreclosure starts, in most states, when you fall behind in your payments for several months. If you cannot catch up or work something out in the period defined by the lender, usually three months, you are notified that your home will be sold at public auction. Some states allow a redemption period, that is the time after the auction during which you can redeem the outstanding amounts on your home and reclaim it. dallas cpa

If you are at the point of foreclosure, you may already be thinking about filing for bankruptcy. This may or may not help you keep your home but at least it will give you more time to figure out what to do next as filing bankruptcy does halt the foreclosure process for some period of time. dallas cpa

Here are the two most common two types of bankruptcy you can file:

Chapter 7 bankruptcy won't prevent foreclosure but it can delay it for a time. If you use this time wisely, you can save some money to help you move and locate a place to live. Chapter 7 is the bankruptcy that wipes out all your unsecured debt and mortgage debt and with the new laws may exempt you from the tax liability for the loss incurred by the lender in the foreclosure sale. dallas cpa

Chapter 13 bankruptcy is one in which you set a plan to repay your debts over a specified time. This will allow you to defeat the foreclosure - as long as you keep up the payments. dallas accountant

As I am not a lawyer or accountant I cannot advise you on which of these might be better for you. I would like to point out however, that if you go into foreclosure, it could be at least 36 months before you can get another mortgage. Going into Chapter 7 bankruptcy may allow you to apply for another mortgage in about 18 - 24 months. This is more lenient because you cannot declare bankruptcy again within 8 years.