Thursday, January 29, 2009

Foreclosure or Bankruptcy?

Foreclosure and bankruptcy are both derogatory legal terms, which in general gives a negative impact. Before proceeding let me just refresh our minds what we understand by these two terms.

Foreclosure, in the textbook language, is a legal process by which a mortgagee's right to redeem a mortgage is taken away, because of failing to make payments. And similarly, bankruptcy is defined as a legally declared inability of an individual to pay to its creditors.

Both of them have certain implications which have significant impact on your credit. Neither of them is an easy option. Here are few factors that need to be considered while comparing foreclosure and bankruptcy:

  • Generally, a foreclosure will have a 7 year statute of limitation whereas a bankruptcy will remain on your credit for 10 years.
  • Following bankruptcy you can stay in your residence for a longer period than foreclosure.
  • When you have opted for bankruptcy, your mortgage lender or other creditors discontinue on giving negative reports which results in improving your credit. However, for foreclosure, they continue to provide negative reports, thus eroding your credit.
  • Bankruptcy helps you to cancel together the debt associated with mortgage deficiencies and also other debts, whereas a deficiency debt can be created by foreclosure.
  • Following a foreclosure it takes a minimum of four years to buy a home. In contrast, you are eligible to purchase a home in two to four years after following bankruptcy.

You have to first decide whether you want to keep your house or give it away. Based on that you need to take into consideration a lot of factors to decide amongst foreclosure and bankruptcy.

No comments:

Post a Comment