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Category: Bankruptcy Law
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Experience:  Attorney in the practice of Bankruptcy Law since 1996
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Which is worse bankruptcy or foreclosure

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Submitted: 8 years ago.
Category: Bankruptcy Law
Expert:  JoeLawyer replied 8 years ago.

Hi RCole:

It is tough to say which is worse since the credit reporting agencies won't disclose how your credit score is tabulated. Both bankruptcy and foreclosure are public records and can appear on your credit report for up to 10 years, and both may hit your credit score for around 75 to 150 points depending on factors the credit reporting agencies won't disclose.

If you are debating whether to file bankruptcy on a home or let it be foreclosed, I will tell you that bankruptcy often includes a foreclosure, and foreclosure sometimes compels a bankruptcy, so you may be looking at both.

In other words, when some files bankruptcy to surrender a home and discharge the debt, the lender still normally has to foreclose the home to get the person's name off the deed and the new buyer on it. Sometimes the lender will accept a deed in lieu of foreclosure instead of foreclosing, but they will sometimes do this even without bankruptcy.

Also, if a foreclosure sale takes place and the house does not sell for enough to pay the balance, in many states the lender is permitted to still go after the former homeowner for the balance that was unpaid (called the "deficiency balance"), which often forces the former homeowner to file bankruptcy to discharge the deficiency balance.

I hope this helps and a positive feedback is always appreciated if this was useful to you.

Joe

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