Is it Better to File Bankruptcy or Foreclosure?

Chapter 7 bankruptcy does not eradicate student loan debt or child support.

Bankruptcy Only Delays Foreclosure

According to Realty Trac, filing a Chapter 7 bankruptcy can temporarily delay a foreclosure judgment, but it cannot permanently stop foreclosure because it only protects the debtor against being pursued for unsecured debt like credit cards. A house is a secured debt that can be repossessed by the lender.

A Foreclosure May Do Less Credit Damage

CreditCards.com indicates that a bankruptcy can be more hurtful to a credit score than foreclosure. A person whose credit score is 680 will lose between 130 and 150 points in a bankruptcy, while someone who loses their home to foreclosure will lose between 85 and 105 points.

Bottom Line

In the end, filing for Chapter 7 bankruptcy is worse than a foreclosure. First, it does not protect the lender against secured debt, and a homeowner is likely to end up with both a bankruptcy and a foreclosure on his credit. Finally, a creditor loses fewer points for a foreclosure than for a bankruptcy.

References

• RealtyTrac: Bankruptcy is Usually a Temporary Stop to Foreclosure
• CreditCards.com: FICO Reveals How Common Credit Mistakes Affect Scores