©graur razvan ionut - freedigitalphotos

©graur razvan ionut – freedigitalphotos

A lot of time I read about people debating about bankruptcy or foreclosure and which one is going to be least harmful and most helpful to a homeowner.  Many questions get asked about the two options, in this article I’m going to answer some of the most commonly asked ones.

What is Bankruptcy?
Bankruptcy is a legal action that a person may apply for when they cannot pay their debts.  It stops all civil collections proceedings and debts being collected against you by putting everything on hold with an automatic stay.

What is a Chapter 7 bankruptcy?
Chapter 7 bankruptcy, also known as liquidation bankruptcy, cancels your unsecured debts.  You may have to liquidate some of your property for the benefit of creditors though.

What is Chapter 13 bankruptcy?
Chapter 13 bankruptcy is where you come up with a repayment plan, to pay back your debts, with lower or no interest.  If you own a lot of assets you would not necessarily have to liquidate them, like you would with Chapter 7 bankruptcies.  You do need to have a regular steady income in order to apply for this one.

Can Bankruptcy Stop Foreclosure?
Bankruptcy can work with foreclosure, by slowing down the process, buying you time to find other solutions to stop the foreclosure.  Filing for bankruptcy does not mean you will automatically stop foreclosure.  Although a Chapter 13 bankruptcy can allow a debtor to pay the mortgage catch up amount over a period of time, therefore helping you avoid foreclosure as long as you can keep up with the payments.

Is it easy to qualify for bankruptcy?

Yes and No.  Meaning the laws have changed making it harder to get approved for bankruptcy, which is not to say it is impossible though.  With a bankruptcy attorney who knows the laws in your state, you will have a better chance on getting approved.  You will have to take a means test to figure out your disposable income.  This test will let you know if you are a candidate for bankruptcy and if so which one is better suited for you.

Which is worse for my credit – Bankruptcy or Foreclosure?
They both equally harmful a foreclosure usually stays on your credit for about 7 years, while a bankruptcy may be on for 10 years.  Try to avoid getting both on your credit that is a double whammy.  Also consider what you want to do with your future; if you are going to be looking to buy another house in your future, more lenders will frown upon a foreclosure on a credit report then a bankruptcy.

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2 comments

  1. Thank you for definitions of the different types of bankruptcy your was much simpler than most that I have read. I have a free Foreclosure Credit Repair blog that many of your readers might find useful.

  2. Monica Alvarez says:

    Thank you for the incredible amount of info on your site. I a few months behind on my mortgage, lost my job and found a new one within in a month, but my bank will not help me. I am single and trying my hardest not to lose my condo. Again, thank you!

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