Foreclosure Made Easy - What Is The Difference Between Bankruptcy And Foreclosure?

Many people are confused by the terms foreclosure and bankruptcy; after all, just what are the differences? You may not have to lose your house or your credit history, just because you are in default. While both are not ideal situations, both are correctable with the appropriate assistance from lenders and legal assistants.

If you owe money to several people and find you are falling farther and farther behind in your repayments, you may feel you have no choice but to file for bankruptcy. You may this is a better option for you than foreclosure, but in order to male that judgement, you need to know the difference between bankruptcy and foreclosure. You also need to know that you can file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy so you will need to know the difference between foreclosure and bankruptcy of various types.

First - foreclosure

Many people see foreclosure as inevitable if they default on their mortgage for a few months so they panic and try to exploit what they think is the difference between bankruptcy and foreclosure and declare bankruptcy in order to retain the control they think they will lose if there is a foreclosure on their property.

It’s important to know that your mortgage lender often loses money in a foreclosure sale so they will be happy and will even assist you in avoiding foreclosure. They just want the money you borrowed from them paid back with interest. Therefore banks and building societies will almost always do their best to give you repayment terms that you can meet.

Don’t jump for bankruptcy until you have talked with your mortgage lender about your financial issues and what you can realistically pay back. Paying something is usually better than paying nothing. But eventually, banks will get annoyed at your partial payments. If you and your bank can’t agree an amicable mortgage repayment schedule, foreclosure will happen.

If you opt for or are forced into a foreclosure, don’t expect to get credit anytime soon. You will of course, lose your home too. Foreclosure is usually seen as something that can’t be avoided, because all other avenues have been explored and it is the point at which your mortgage lender or another creditor assumes control of your property, when it is sold and how much for.

However, it is not true to say you will lose your home immediately. A foreclosure sale can take a long time to arrange. On the bad side, foreclosure homes sell for little money, traditionally, so there is no guaranteed that your debts will be covered, even though you will have lost your home.

Bankruptcy can seem scary and even shameful to some people, but a little knowledge will help you see that for some people, it is a viable option. It is even the case that in certain circumstances, you can file for bankruptcy and still live in your home, keeping it as yours.

A Chapter 13 bankruptcy may be just help that you need to avoid foreclosure on your home. But bear in mind that if you have paid off over sixty per cent of your mortgage, you are actually in a good position to avoid foreclosure. You will also find lenders willing to give you loans, even following foreclosure.

Chapter 13 Bankruptcy

A Chapter 13 bankruptcy offers a repayment plan which gives people usually between three and five years to pay off their debts, which may enable you to have the breathing space you need to avoid foreclosure on your home. This is a suitable option for you if you have too much money to file for Chapter 7 bankruptcy. Your debts can be reduced this way and for the debts which can’t be discharged, you have longer to pay them off. It is also true to say that if you file a chapter 13 bankruptcy and you have a chapter 13 approved by the court and you make all of the payments under the plan you can keep the house.

Chapter 7 Bankruptcy

This is the most straightforward of all bankruptcy categories and thus it is Chapter 7 bankruptcy that accounts for nearly seventy per cent of all bankruptcy cases.

It is a simple case of liquidation, whereby the person owing the money has property not exempt from bankruptcy proceedings sold off to pay creditors. However, because Chapter 7 bankruptcy is means-tested, it is more difficult for people to file. However, the cases are usually resolved within six months. There is no minimum debt needed in order to qualify for this.

You have some protection with Chapter bankruptcy proceedings as you can keep some of your assets such as your house and your car whilst you pay off your debts. One negative thing about Chapter 7 bankruptcy is that anyone who co-signs for the loan with you will be responsible for paying back the debt unless they too file for bankruptcy.

A Chapter 7 bankruptcy is good if you have gone through credit counselling and are happy to sell property except your main family home, which is exempt from sale under such a filing.

A Few More Things to Consider

Bankruptcy is a matter of public record. Anyone would potentially find out that you have filed for whichever type of bankruptcy, although no-one will specifically be told. The bankruptcy will also remain on your credit history for ten years and adversely affect your borrowing potential for things such as loans and mortgages. You can build up your credit score again, of course, so it is not a permanent problem, but it is significant problem.