Is It Worse to Have a Bankruptcy or Foreclosure?

Immediately after filing your bankruptcy petition, the Kentucky bankruptcy court will order an automatic stay on your home. This means that your creditors will be instantly barred from initiating foreclosure proceedings on your home, along with being blocked from any other collection activity. While this is one of the many great reliefs that come with bankruptcy, it is possible that filing for it may not be in your best interest in the first place. That said, continue reading to learn whether it is worse to have a bankruptcy filing or house foreclosure in your financial history and how an experienced Louisville, Kentucky consumer bankruptcy lawyer at Schwartz Bankruptcy Law Center can help analyze your current situation.

Is it worse to file for bankruptcy or have a house foreclosure?

To reiterate, filing for bankruptcy may stop the foreclosure of your home, but it may also prevent utility shutoffs in the meantime. What’s more, a Chapter 7 bankruptcy may allow you to eliminate your mortgage debt and exempt some or all of the equity in your home. On the other hand, a Chapter 13 bankruptcy may allow you to catch up on your missed mortgage payments within three to five years, all while eliminating certain liens on your home and discharging certain debts upon its completion.

Now, foreclosure proceedings do not come with any such allowances, protections, or overall added benefits. In addition, prospective creditors may view a bankruptcy history more favorably than a foreclosure history. This means you may be more likely to be considered for future mortgage loans.

In these examples, filing for bankruptcy may be deemed more beneficial than letting your home undergo foreclosure proceedings. However, its one downfall may come with your credit. This is to say that your foreclosure incident may appear on your creditor report for seven years while your Chapter 7 bankruptcy filing may remain for 10 years. But at least bankruptcy will not leave you with both a poor credit score and major mortgage debt like a foreclosure would.

Is it still possible to lose my home in bankruptcy?

Even if you file for bankruptcy to stop foreclosure, it may still be best to let go of your home.

This may be particularly true if your home holds too much equity that it is outside of federal and state bankruptcy exemptions. Specifically, federal or state bankruptcy exemptions allow up to $25,150 or $5,000 in home equity to be protected during Chapter 7 bankruptcy, respectively. Otherwise, it may make more sense to have your bankruptcy trustee sell your home and use this money to pay off your outstanding creditors.

Now that you have this background knowledge, your next step should be to employ a skilled Louisville, Kentucky consumer bankruptcy lawyer to represent you. Please get in touch with Schwartz Bankruptcy Law Center today.