{"id":1866,"date":"2020-05-04T06:00:04","date_gmt":"2020-05-04T12:00:04","guid":{"rendered":"http:\/\/www.lexingtonlaw.com\/blog\/?p=1866"},"modified":"2024-11-13T14:57:58","modified_gmt":"2024-11-13T20:57:58","slug":"foreclosure-bankruptcywhich-option-worse","status":"publish","type":"post","link":"https:\/\/www.lexingtonlaw.com\/blog\/credit-repair\/foreclosure-bankruptcywhich-option-worse.html","title":{"rendered":"Foreclosure or Bankruptcy \u2014 Which Option is Worse?"},"content":{"rendered":"\n
\"A<\/figure>\n\n\n\n

Note: For legal or\nfinancial advice regarding your specific needs, please contact an attorney or\nfinancial adviser in your state.<\/em><\/p>\n\n\n\n

Foreclosure and bankruptcy are usually last resorts when\nit comes to your finances. They both have a strong impact on your credit score\nand can have far- and long-reaching financial consequences. <\/p>\n\n\n\n

What Happens When You Foreclose?<\/h2>\n\n\n\n

In brief summary, when you can’t pay your mortgage, your mortgage lender may let you try a short sale. A short sale<\/a> is when a house is sold for less than the cost of the mortgage. If you can’t do a short sale or the house doesn’t sell, your lender will likely hold a foreclosure auction. If the house still doesn’t sell, your lender officially takes ownership of the property. For the homeowner, a foreclosure means that you are defaulting on the loan and are giving up ownership. However, this doesn’t mean that you are free from all financial obligations to your lender. If the house doesn’t sell in foreclosure for enough to cover the mortgage, you may still be responsible for paying the difference. <\/p>\n\n\n\n

How Long Does Foreclosure Stay on Your Credit History?<\/h3>\n\n\n\n

A foreclosure<\/a>\nis a serious negative mark on your credit history. It can stay on your credit\nreport for seven years, starting from the date of the first missed payment.<\/p>\n\n\n\n

\"A<\/figure>\n\n\n\n

Applying for a Mortgage After a Foreclosure<\/h3>\n\n\n\n

Applying for a mortgage after a foreclosure can be very difficult. Some lenders require you to wait a certain amount of time before you can apply for another home loan. For example, you must wait three years<\/a> after a foreclosure to be eligible for an FHA loan.<\/p>\n\n\n\n

If you’re ready to apply for a mortgage after a foreclosure, make sure you can afford the payment. Ideally, your mortgage payment should be less than 28%<\/a> of your take-home pay.<\/p>\n\n\n\n

Lenders will be looking closely at your credit history during the mortgage application process. Ray Hooper<\/a>, the Education and Housing Director for the Consumer Credit Counseling Service of Greater Dallas, says, \u201cA foreclosure is very serious to mortgage lenders. They\u2019re going [to] look at a foreclosure more seriously than they will a bankruptcy that doesn\u2019t include the house.\u201d<\/p>\n\n\n\n

The best scenario is if you had excellent credit before the foreclosure and have had excellent credit since. You want to be able to show the lenders that this was a one-time thing and not indicative of your overall creditworthiness.<\/p>\n\n\n\n

What Happens When You Go Bankrupt?<\/h2>\n\n\n\n

What happens when you file for bankruptcy<\/a> depends in large part on which type you are filing. But the first thing filing does is stop creditors from being able to continue to try to collect on debts. This is important because it often keeps creditors from being able to pursue actions to garnish your wages<\/a> or take your assets as repayment.<\/p>\n\n\n\n

In a Chapter 13 bankruptcy<\/a>:<\/p>\n\n\n\n