Foreclosure or Bankruptcy: Which is the Better Option?

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Many Americans who are struggling to keep up with all of their financial obligations may wonder whether foreclosure or bankruptcy is the better option. Unfortunately, that question doesn’t have one answer that’s right for everyone. Which one you choose will depend on a lot of factors, including your overall financial liabilities, current credit history, and long-term goals regarding where you live.

The cold, hard truth is that lenders really don’t like to see a foreclosure on a potential borrower’s credit history – EVER. To them, a foreclosure says that not only did you fall behind on your payments, but you became so unreliable that your bank actually didn’t want you as a borrower anymore. The bottom line is: lenders don’t care about much beyond whether or not you can pay them back.

Think about this: even if you determine that you just can’t handle your house payments anymore and you want to walk away from your mortgage, where are you going to live? If you’ll need to apply for another (albeit smaller) mortgage or even attempt to rent an apartment, having a foreclosure on your record will make finding a future lender or landlord extremely difficult.

If you’ve fallen behind on your mortgage – even if you’ve already gotten an intent to foreclose notice from your lender – there are things you can do to stop the foreclosure from happening. All of them will involve talking and negotiating with your lender. You could apply for a loan modification, wherein (if approved) your mortgage would be altered slightly so that the payments are something you could handle. Another option to discuss with your lender is to refinance your mortgage. This would essentially quash your current mortgage agreement, replacing it with a new one (with a lower interest rate). The lower interest rate would bring down your monthly payments.

Sometimes it is possible to request a forbearance, which is essentially asking your lender to press the pause button on your payments until you pay off some of your other debts and are better able to resume paying for your home again. This option will only give you several months to play with, though, so it will work if you’re in only slightly over your head.

On the other hand, if you take a good, hard look at your incoming and outgoing money and realize that you’ve got a huge amount of debt other than your mortgage, you may be able to wipe some (or all) of those other liabilities clean by filing for Chapter 7 bankruptcy.

It is possible to keep your home while filing for bankruptcy, but you’ll have to determine if you’d be able to pay your mortgage if you were able to get a fresh start without other debts weighing you down. In order to crunch the numbers, it is important that you at least speak to a professional who specializes in these kind of situations. Be careful, though, and don’t be sucked in by someone who makes outrageous claims about making your debt magically disappear. You’ll want a licensed specialist who has experience with real estate matters like yours. To meet with a bankruptcy/foreclosure defense attorney in NJ (at a no charge consultation): call (732) 852-7295 or click now.

 

Image Credit: Vic

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8 Responses to Foreclosure or Bankruptcy: Which is the Better Option?

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