Foreclosure or Bankruptcy

Here are some key differences between foreclosure and the various types of bankruptcy:

Foreclosure

• Foreclosure is a legal process where a lender takes possession of a property due to the homeowner’s failure to make mortgage payments.
• Foreclosure only affects the home being foreclosed on, and does not impact the homeowner’s other debts.
• A foreclosure remains on the homeowner’s credit report for 7 years.
• If the home is sold for less than the amount owed on the mortgage, the homeowner may still owe the remaining “deficiency” balance to the lender.

Chapter 7 Bankruptcy

• Chapter 7 bankruptcy allows the debtor to discharge most unsecured debts, like credit cards and medical bills.
• However, it does not eliminate the mortgage debt, so the lender can still foreclose on the home.
• Chapter 7 bankruptcy remains on the debtor’s credit report for 10 years.

Chapter 13 Bankruptcy

• Chapter 13 bankruptcy allows the debtor to restructure their debts and repay them over a 3-5 year period.
• This can help the debtor avoid foreclosure by allowing them to catch up on missed mortgage payments.
• Chapter 13 bankruptcy stays on the debtor’s credit report for 7 years.

Chapter 11 Bankruptcy

• Chapter 11 bankruptcy is primarily used by businesses to reorganize their debts and operations.
• It allows the business to continue operating while developing a plan to repay creditors.
• Chapter 11 can also be used by individuals, but is less common for personal bankruptcies

You should get professional help. In southeastern Connecticut, you will find attorneys that can give you a free 30-minute consultation to explain the differences.

In summary, foreclosure only impacts the home, while bankruptcy affects the debtor’s overall financial situation and credit. Chapter 13 bankruptcy provides the best option to avoid foreclosure, while Chapter 7 does not stop the foreclosure process. The timing of filing for bankruptcy in relation to foreclosure can also impact the outcome.