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Which Is Worse Foreclosure or Bankruptcy

Sep 13, 2008
It can be very difficult to choose between settling for bankruptcy or allowing a foreclosure to take place. Few people realize how difficult the choice is to make, or recognize that the decision is not an either/or one. A mortgage lender will file a foreclosure action when it is not paid its monthly mortgage payments.

The reason a foreclosure occurs is because a mortgage lender isn't paid their monthly mortgage payments. Stopping the action can only be done by paying the lender. A mortgage loan is sort of like a car loan and if a person does not pay his car payment, he will lose the car through repossession. Therefore the same result will apply to a person who does not pay his mortgage payments - he will lose his home through foreclosure!

For people who cannot pay their debts, sometimes they file the legal action of bankruptcy. This will put an end to the civil actions being filed against the debtor during the time they are in bankruptcy. This means that the mortgage lender cannot continue through with their legal actions, including a foreclosure.

However, a mortgage lender can file for relief from the automatic stay, and when the relief is granted, simply proceed with the aforementioned action. The bottom line is that bankruptcy does not stop foreclosure and it does not allow a debtor to keep a house without paying the mortgage lender. While it cannot stop the action, bankruptcy can slow it down.

While bankruptcy does not stop foreclosure, it can give a person time to pay a mortgage lender or make it easier for a person to pay a mortgage lender. Bankruptcy makes a mortgage lender pause in their foreclosure efforts, and a debtor has a little extra time to raise the money. Since the act of filing bankruptcy can get rid of many unsecured debts completely, a person who is in debt may find themselves with more money that they can pay their mortgage payments with. In terms of a chapter 13 bankruptcy, the courts will dictate that the payment of the overdue mortgage needs to be paid through several payments, which will further give the debtor time to pay the lender off.

In order to file for bankruptcy, you must first qualify - which not everyone does - and even if you do, you will be faced with large legal fees. Legal costs and fees might actually end up being more than the amount needed to catch up on the past due mortgage payments. If you find yourself in a situation where you think bankruptcy can stop or stall foreclosure, you should discuss it with a lawyer. Bankruptcy is so detailed that you should not try to handle it by yourself. This article is only intended to give general information, so for more detailed information, contact a lawyer in your state.
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