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When it comes to bankruptcy vs foreclosure, you need to get
a clear handle on your situation before deciding on the best
course of action. There are many factors that can affect
what is best for each homeowner. Here are some things to
consider.
Do you have significant other debt?
If you have a pile of medical bills or significant credit
card debt, a bankruptcy option that allows you to keep your
home could be the perfect solution. This is a chapter 13
bankruptcy. This type of bankruptcy restructures the debt
that you owe. You will typically have to pay back all of the
money that you owe to everyone, it will simply be spread out
over a longer period of time and in payment chunks that you
can afford on your current income. In the debate of
bankruptcy vs foreclosure, choosing a chapter 13 bankruptcy
means that you must have a current verifiable income.
Do you have a lot of money in the bank, assets, or in an
IRA?
In chapter 7 bankruptcy, the courts will take any money that you have
in the bank and assets that are over a certain amount of
money. In some cases, they also have the option to take
money from your IRA account. What you can keep in bankruptcy
can differ from state to state. If you have significant
money, assets, or an IRA, foreclosure may be a better option
than bankruptcy. Consulting a bankruptcy attorney in your
state for details about what you can and cannot keep in
bankruptcy.
What is your current income level?
If you want to file a chapter 7 bankruptcy, a complete
discharge of most of your debt, there are certain income
levels that you must qualify for. It varies depending on the
number of dependents you have. If you do not qualify for a
chapter 7, you would have to file a chapter 13 bankruptcy to
restructure your debt. Your mortgage company will also take
into consideration your income level and if you make too
much money, may not have any options for you. This one can
get tricky because if your lender will not work with you
because you make too much, you may or may not qualify for a
chapter 13 bankruptcy either. In this case, you may have no
option but to let the house go into foreclosure.
Another important factor to consider about bankruptcy vs
foreclosure is that a foreclosure stays on your credit for 7
years and a bankruptcy stays on your credit for 10 years.
However, how each lender will react to either foreclosure or
bankruptcy differs. Foreclosure is likely to be seen more
negatively by mortgage lenders than a chapter 13 bankruptcy
where you kept your mortgage. No matter which option you
choose, getting any kind of credit will be difficult for
quite a while.
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