Make A Tough Choice: Foreclosure Or Bankruptcy
Are you facing foreclosure on your property? A foreclosure happens when you cannot keep up with mortgage payments, and the lender takes over the ownership of your home or real estate. Why you are unable to meet the terms of the lender could be due to multiple reasons. However, the reasons are not very important, but the choices that you have are! Some people file for bankruptcy as they consider it ‘less worse’ of the two. However, you know it well that neither of the two options is an easy one.
Foreclosure
The foreclosure process happens when you are unable to pay your mortgage. The lender then moves in with the law’s help, and you may lose your house. The lender mostly sells the property to recover the debt. If it sells for less than what you owe the lender, then you may be forced to pay the balance amount.
Usually, a lender will get in touch with you after you miss one or two payments. If you miss another payment and cannot fulfill your obligations, the mortgage lender may start foreclosing proceedings.
Bankruptcy
Bankruptcy process deals with debts. When you are unable to pay back any unsecured debts such as credit card bills, then the process of bankruptcy can start. It is a serious process, and it is better not to use it unless there is no other option.
A trustee will be tasked to take over your assets and sell them to enable payment of all loans and debts. It has long term implications that can haunt you in any future credit report.
Devil Or The Deep Blue Sea?
Between foreclosure and bankruptcy, the choices are not too many, nor very pleasant. The first question that you need to answer is whether you want to keep your house or are you ready to give it up? If you intend to keep it, then you need a good payment plan to make it happen. Let us see what the possible actions are:
- Short sale: you can sell the property for less than the amount of mortgage and let the proceeds from the sale go to the lender. The lender has to approve the sale and, in some cases, may even let go of the difference.
- Modify Loan: if you can make your intentions of keeping the house clear from the lender, then you may be able to renegotiate the loan terms and stop foreclosure.
- Forbearance: ask the lender to suspend payments until you can get back on track. This will completely depend on the lender. This option is best for a future good credit score.
- Chapter 7: under chapter 7 bankruptcy filing, you can keep a property depending on the laws prevalent, but the rest of your assets are turned over to trustees who sell them and give the proceeds to the lenders.
- Chapter 13: According to chapter 13, bankruptcy is also called a wage earner’s plan. It offers several advantages to defaulters. It allows them to save their homes from foreclosure.
How Does It Affect?
Foreclosure or bankruptcy, both choices are going to affect your credit score on a long-term basis. Once you get a notice from the lender, you must immediately respond. Declaring bankruptcy is an option. Once you appear in the bankruptcy courts, the judge will give you time ranging from 6 months to one year to pay back the loan with interest as well as other costs. The lender will sue you while foreclosing to ensure the collection of difference, which originates from short selling the property. It will remain on your credit report for at least 7 to 10 years and will affect all your credit transactions.
Important! Bankruptcy Does NOT Stop Foreclosures In Canada
Facing foreclosure is distressing, but by taking the help of a professional, you may be able to save your credit score. If you decide to sell your house to prevent foreclosure, we’re here to help. Contact us through the form below or by phone 403-280-3300.