Bankruptcy vs Foreclosure

If you are considering bankruptcy, foreclosure may also be an option to look at. Both bankruptcy and foreclosure can provide you with some relief from your financial problems. However, they both will provide you with some negative consequences as well. Here are a few differences between bankruptcy and foreclosure.


Bankruptcy is a process that you elect to go through with the court system. With bankruptcy, you will file the necessary paperwork and have the court help you relieve many of your debts. With this process, you will typically get to keep your home, but any other assets might be fair game. The bankruptcy trustee will try to take as many of your personal assets as possible in order to repay your creditors. Therefore, if you can afford your mortgage but are having problems keeping up with other payments, this may be your best option to go with.


Foreclosure is a process that occurs when you get behind on your mortgage payments. Once you become delinquent on your payments, your mortgage holder may decide to go through the foreclosure process. They will notify you that you are in default, and your home will be foreclosed upon within a certain period of time if you do not make up your missed payments and cover fees accrued as a result of the delinquent payments. As a result of the foreclosure process, you will lose your home, but you can keep any of your other possessions. Therefore, if the main source of your problems is the size of your mortgage payment, this may be your best option.

Credit Impact

According to most credit experts, a foreclosure is going to be much more damaging to your credit profile than a bankruptcy would. In fact, many of them say that a foreclosure will do twice as much damage as a bankruptcy does to your credit score. Therefore, if you are considering your future ability to make purchases on credit, bankruptcy might be the better choice.

When you file bankruptcy, it is going to stay on your credit report for 10 years. By comparison, a foreclosure will stay on your credit report for 7 years. Therefore, both options are going to remain a problem for you for the foreseeable future when it comes to making large purchases again.

Buying a House

If you plan on purchasing another home at some point in the future, you should try to avoid foreclosure at all costs. Home lenders are going to look at a foreclosure much more negatively than they would a bankruptcy. Many times, a foreclosure will involve much more lost money for a creditor than a bankruptcy would. Therefore, a home mortgage lender is going to see many more potential financial problems with someone that has been through the foreclosure process.

Choosing Between Them

Before you decide which option to choose, you will need to evaluate several personal factors. If buying a house is important to you, you should probably lean towards bankruptcy. However, if you just want to eliminate a large payment and you do not care about future large purchases, foreclosure is an option for you.