If You Include Your Home in Chapter 7: Do You Have a Bankruptcy & Foreclosure on Your Credit Report
Homeowners on the verge of foreclosure should explore all possible methods to avoid the negative consequences foreclosure brings. After exhausting all options, bankruptcy is a last resort for many homeowners. Through Chapter 7 bankruptcy, you can surrender the home and wipe the slate clean.
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Chapter 7 Bankruptcy
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Chapter 7 bankruptcy is the form of bankruptcy that allows you to start fresh by eliminating your debt. However, even though the debt is done, there is still a lien on the mortgage. The lender will need to foreclose the home to regain ownership. Immediately after filing, an automatic stay is issued preventing the lender from continuing with the foreclosure process. As long as the stay is in effect, you do not need to make a mortgage payment. Utilize the time to save money for alternate housing. Homeowners who wish to file Chapter 7 bankruptcy must meet the income requirements. You cannot exceed a certain amount per month in comparison with the median income for your state. If your income is too high, you must pass a series of tests to determine your ability to repay the debt.
Reporting to the Bureaus
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You will not experience both a foreclosure and bankruptcy on your credit. Only the bankruptcy is reported to the credit bureaus if the home was discharged through Chapter 7 bankruptcy. The mortgage will be reported, although the balance will be as zero. You will no longer have the mortgage payment obligation lowering your debt to income ratio. Over time, you can rebuild your credit score.
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Credit Consequences
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Bankruptcy and foreclosure both significantly impact credit. Depending on who is viewing your credit, one may be considered worse than the other. For example, a mortgage company is likely to see the foreclosure as more severe than the bankruptcy. Even if you choose not to file bankruptcy, missed payments will be reported the bureaus. Payment history counts for 35 percent of a credit score. A Chapter 7 bankruptcy will remain on your credit report for at least 10 years from the date of filing the petition.
Discrepancies
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Monitor your credit report after bankruptcy to make sure all the information is reported correctly. If there are any errors or discrepancies, contact the credit bureau directly to dispute the account. Prepare to provide evidence of the error, such as your bankruptcy paperwork. The Fair Credit Reporting Act requires the credit bureaus to adjust any inaccuracies right away.
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