Facing foreclosure is a scary situation, and using bankruptcy to save a home may be equally unnerving. Both can be disastrous for your credit score. There is no definitive easy answer.
Credit Score
Both have a negative impact on your credit score and can remain on your credit report for a few years. A Chapter 7 Bankruptcy will be appear on your credit report for 10 years while a Chapter 13 Bankruptcy will remain on your credit report for 7 years. A foreclosure can remain on your credit report for up to 7 years. A foreclosure appearing on your credit report may be worse than a Chapter 13 filing. If you successfully complete your plan, you might be in the position to refinance your home or sell and purchase a new home. A foreclosure or deed in lieu of foreclosure can result in a loss of up to 300 points on your FICO score.
New Loan
If you have been through foreclosure or bankruptcy, lenders will be reluctant to provide you new loans. You may have to wait for long or you will be charged high rates. Currently if you have been through foreclosure, you must wait for at least 5 years before you can get a Fannie Mae home loan. If you have successfully obtained a discharge in a Chapter 7 bankruptcy proceeding, you must wait for at least 4 years whereas if you have successfully completed a Chapter 13 payment plan, you must wait for at least 2 years.
Bankruptcy Buys You Time
The moment that you file a bankruptcy petition all debt collection activity against you will be automatically stayed by operation of law. Your lender cannot move forward with foreclosure or cannot contact you regarding any missed payments nor discuss with you any workout arrangements. In a Chapter 13 bankruptcy proceeding, you can keep your home if you successfully complete the payment plan. Generally a Chapter 7 bankruptcy proceeding might not save your home but your debts will be discharged. The trustee will generally take all your non-exempt assets and liquidate them to repay your creditors. If you have some equity in your home, you may be able claim an exemption.
Get Legal Help
Remember when you have both a bankruptcy and foreclosure on your credit it is even more difficult to get a loan later on than if you have only one of the two. Consider all options before taking a final decision. Consult with an experienced bankruptcy attorney.
