Is Bankruptcy Worse Than Foreclosure?

hands over house

You may have fallen behind on your mortgage payments significantly, so much so that you are making yourself vulnerable to threats of foreclosure. With this looming threat, you may consider filing for bankruptcy as a preventative measure. But you may be unsure as to whether this will make your financial situation better or worse. If this is your current standing, please follow along to find out whether bankruptcy is worse than foreclosure and how a proficient Rockland County foreclosure defense attorney at The Law Offices of Allen A. Kolber, Esq., P.C. can help determine which is a better move given your unique financial situation.

Can bankruptcy help stop foreclosure?

Unfortunately, your creditor may be opposed to offering loan forbearance, loan modification, short sale, or deed in lieu of foreclosure when you fall on hard times and miss two or more months of mortgage payments. Rather, they may skip straight to the foreclosure process, as is their given right in the mortgage contract. But before it is entirely too late, you may petition for Chapter 7 or Chapter 13 bankruptcy.

In either bankruptcy case, the New York State bankruptcy court may place an automatic stay on your house. This essentially orders your creditor to stop all their collection activities, which includes initiating the foreclosure process. Both bankruptcy types offer forms of forgiveness that may allow you to get back on track with your mortgage payments, or at the very least delay the foreclosure of your house until you figure out your next best financial move.

Is bankruptcy possibly worse than foreclosure?

While a bankruptcy filing may save your house from foreclosure, you may be under unique circumstances in which this is not actually in your best interest. That is, if you cannot sustainably afford your monthly mortgage payments even after your bankruptcy case wipes out certain debts. Or, you have substantial equity in your house, so it makes more sense to sell it and use these funds to pay off a majority or all of your creditors.

Overall, though, the one way a bankruptcy petition may be disadvantageous compared to foreclosure is its more severely negative effect on your credit score. For example, a foreclosure may remain on your credit report for seven years, but a Chapter 7 bankruptcy filing may appear for 10 years. What’s more, if your credit score is already low, your bankruptcy filing may cause it to dip even further. However, bankruptcy has some definite benefits that may outweigh these minor drawbacks in your eyes.

Now that you have this background knowledge, your next step should be to employ a talented Rockland County bankruptcy attorney to represent you. Please get in touch with The Law Offices of Allen A. Kolber, Esq., P.C. today.