worse bankruptcy foreclosure
Foreclosure and bankruptcy, or just foreclosure?
Which would be best in the situation. After a foreclosure, should someone file bankruptcy to eventually wipe the slate clean? Or is bankruptcy so bad, it wouldn’t be worth it. What do you think?
This depends on your situation. If you own primary residence that’s getting foreclosed, the first mortgage on it is most likely a non-recourse loan. This is where the bank cannot go after any other assets to recoup their losses. They can only seize the home in foreclosure and auction it off to get their money back. If they can’t get enough for it at foreclosure auction, they can hang onto it and try to sell it on the open market for whatever they can get for it.
If you have other liens on the property (tax lien, second mortgage, etc.), you will still be liable for those debts. If you have other assets you can sell to cover those debts, you can liquidate those and pay off the debt. That way you’ll only have a foreclosure on your credit report, which is a much lighter hit than a bankruptcy, and especially bankruptcy plus foreclosure.
If you choose to not liquidate those assets and you go into bankruptcy, the bankruptcy court will require you to surrender those assets, while they determine which of your creditors gets how much in the settlement. So, it makes no sense to hang onto those assets and go into bankruptcy. You lose them anyway, and then you have a bankruptcy on your credit report for the next 7 years.
If you do have additional liens on your property and have no assets to liquidate to pay them off, you may be better off financially going into bankruptcy. At least that wipes the slate clean and you can start over again in 7 years.
