Bankruptcy Vs Foreclosure: Which is Worse?

Foreclosure is a result of the inability to make your mortgage payments. Foreclosure is damaging to your credit worthiness and, what's more, if there are any deficiencies outstanding with the property, the original lender can continue to pursue you for repayment until such time as you may file bankruptcy. Having a foreclosure in your background can make it difficult to purchase future real estate, perhaps for several years.

Bankruptcy, on the other hand, is an action to try to cure a problem. Arguing for bankruptcy vs foreclosure, one could say that bankruptcy has the opportunity to offer a fresh start with debt forgiveness easing your financial burden. With foreclosure, you lose your home and a place to live with nothing as a gain except to be out from under the burden of a high mortgage payment. Both will affect how future creditors assess your suitability for another loan.

Two Different Legal Actions
When discussing bankruptcy vs foreclosure, one must realize that these are two very different legal actions. A foreclosure is brought by the lender, wanting to collect his mortgage payments on the property one way or another. If you can't make your mortgage payments, the lender wants the house to sell at auction, or as a foreclosed property, to recoup his investment in the property. A bankruptcy is brought about by a request from you, to help get some financial relief when you have had difficult circumstances interfere with your ability to pay your debts. A bankruptcy seeks protection from the court system against creditors who are out to take everything you own to get the payments due them.

Two Types Of Bankruptcy Actions
There are basically two types of bankruptcies one can file: a Chapter 7 or a Chapter 13. When either type of bankruptcy is filed on behalf of the individual, that action begins a legal process that puts a stop ton everything, including a foreclosure. This process is known as an “automatic stay.” A mortgage lender can file to be exempt from the bankruptcy and if so granted, then the foreclosure will proceed.

Bankruptcy and foreclosure can work in conjunction with each other and that is often the case. If a mortgage lender threatens foreclosure, the homeowner (borrower) can file for bankruptcy. Through an automatic stay, all transactions are put “on hold.” The mortgage lender can petition the court to remove the automatic stay and whether the court grants the motion or not, an amount of time has been introduced to give the borrower the ability to perhaps work through his or her problems.

With a Chapter 13 bankruptcy, the court could approve repayment of the missed mortgage payments over time and the mortgage lender, unless winning an appeal, will have to accept that judgment as final.

To apply and receive a bankruptcy approval, the individual must meet certain requirements to qualify. That is another stipulation of a bankruptcy vs foreclosure scenario. A bankruptcy or a foreclosure should be considered only as a last resort. However, both actions are in place to mitigate circumstances that might arise to make it difficult for you to continue paying your debts.

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