foreclosure vs. bankruptcy? Or none of the above?

[counterGOPI]

Wow, I can't believe it is coming to this but we just can't afford to live here anymore. We have only been here a year but the mortgage, taxes and bills are so high it seems like these are our only options. We can't make it and are struggling just to try and make it each day.  This house is literally falling apart around us and we can't even afford to fix it up at all,let alone pay the heat bill to survive in this freezing cold weather (which scares me to death with a baby on the way in a couple of months). :(

But without going into all of our troubles, what do you know about bankruptcy and foreclosure? Is there a way to just lose the house but not other things (like our only vehicle we still owe lots of money on, and our other debts - ughh credit cards)? How bad are these options really? How badly would our credit be ruined? Would we be able to get another home in the future (far future since we have no money and would have to try to rent for now)?

I feel like I have more questions but can't think of them now. Any help and advice would be greatly appreciated! Thank you!

[fierrbugg]

There is a way to lose just the house and not declare bankruptcy by going into foreclosure.  After I lost my job last year and dh had to have sudden and immediate surgery earlier this year (and was out of work for 12 weeks) - we made the decision to walk away from our house.  If we only had one of those things to deal with we would have been fine - but the 2 kicked our butt - so with making 1k less a month than we needed to for the 3 months that dh was on short-term disability and having our savings depleted already and with the mortgage company not at all willing to work with us - we had to walk away from the house that I loved.  :(  Painful, but a blessing in disguise - and a great lesson about everything we did wrong for us. 

Finding a rental was actually way easier than I anticipated.  We were very up front about our impending foreclosure and most rental companies/owners shrugged it off saying everyone had one, we're in AZ which was hit hard by the housing dip so idk if that's why everyone is so uninterested or not.  They cared more about if one of us was working - and how much we made/how long we'd had that job.  We downsized house-wise and our rent is 50% of what our mortgage was.  idk anything about bankruptcy - but as I understand it, a foreclosure stays on your credit 3-5 years, which makes buying a house difficult in the short-term, but it doesn't sound like that will be something you're looking to do for a while either anyway.  Getting out from under the house has improved our situation considerably.  Once dh returned to work, and with our lower rental payment we've been able to pay off all of our credit cards, so we're just dealing with 1 car payment and living expenses. 

hth, counterGOPI, and best of luck as you decide what is best for your family.

Edited by fierrbugg - 12/31/10 at 4:21pm

[MsFortune]

Hi-

I am going through something similar.  Sucks!

Your options are (1) short sale, (2) foreclosure or (3) bankruptcy. 

If you can get a bank to agree to a short sale, that is your best option.  Basically, the mortgage holder agrees to let you sell the house for less than you owe for payment of the debt.  But you need the bank to agree to that.  It does hurt your credit.

The next best option is foreclosure.  Basically, you just walk away from the mortgage and don't pay it.  It is worse for your credit than short sale.

In either of the above cases, since you are getting out of paying the full debt, the mortgage holder can either chose to let you walk away with no further payment, or they can sue you for the amount owed.  If that happens, you probably want to declare bankruptcy.  

Bankruptcy is the absolute worst for your credit and takes seven years to recover.  

FYI - wikipedia has a good summary on each of these topics.

Hope this helps

[surrogate]

If you have lots of credit card debt too, i would file bankruptcy.  You can start fresh.  There are diff kinds of bankruptcy, so you need to speak with an BK atty to find out what you even qualify for, and there are costs associated with it.

I would just start over though.  It isnt as bad as people think.  You can start rebuilding your credit as soon as your BK is discharged, and I know people who have bought houses within months of BK discharge.  

Google creditboards they have a bankruptcy forum that is really great!  

If you foreclose, it is likely the lender will come after you for the deficiency balance, which can put you in a world of hurt (garnishments, etc)

GL

oh and bankruptcy does not take 7 years to recover from.  It may be on your credit for 7 yrs as a public record, but most of the time you can get that deleted with some work.  (They tell you how at creditboards)

[Smithie]

With big house debt plus big consumer debt, I would also file for BK and take the fresh start and learn from my past and never go into debt again. I am so sorry for your trouble, creditboards is a great place for more detailed advice. 

[Lucy Alden]

It's been a long time since I've filled out a job application but don't most of them ask if you've ever filed for bankruptcy?  If you of your DH have careers in finance a bankruptcy may prevent you from getting future jobs.  I could be wrong and it may be the least of your worries in your situation.  I just wanted to throw that out.

[grisandole]

Just want to ditto the pp regard job applications and bk. Some jobs will not hire people with a BK or other types of debt, so be careful before you file. Mostly these are finance jobs and federal jobs, you should be fine in other fields.

[BetsyS]

Well, the benefit of foreclosure above bankruptcy is that you actually get out of the debt.

In my state, the bank *can* (but doesn't always) come after you for the difference between what your house sells for and what you owe.  If your house sells for $50,000 less than what you owe, that's $50,000 you owe, not the entire mortgage amount, you know?

If you file bankruptcy, the judge decides if you actually get your slate wiped clean or if you just have a restructuring of the debt.  In my state, the median income is $70,000.  If you make near that, then the debts will be restructured.  Depending on the judge, if you are a SAHM, he/she might not accept your income as $0.  He/she might decide that you could make $35,000, say, and factor that into your family's income.  So, you'd head into bankruptcy court thinking you'd get a clean slate, and you end up paying 100% of your debt.  Might be easier to foreclose and settle with the bank for the difference, you know?

It sort of depends on your family's income, plus how underwater you are in your house, and if you think that you can afford your house (but just got behind) or not. 

[by-the-lake]

Originally Posted by BetsyS 

Well, the benefit of foreclosure above bankruptcy is that you actually get out of the debt.

In my state, the bank *can* (but doesn't always) come after you for the difference between what your house sells for and what you owe.  If your house sells for $50,000 less than what you owe, that's $50,000 you owe, not the entire mortgage amount, you know?

If you file bankruptcy, the judge decides if you actually get your slate wiped clean or if you just have a restructuring of the debt.  In my state, the median income is $70,000.  If you make near that, then the debts will be restructured.  Depending on the judge, if you are a SAHM, he/she might not accept your income as $0.  He/she might decide that you could make $35,000, say, and factor that into your family's income.  So, you'd head into bankruptcy court thinking you'd get a clean slate, and you end up paying 100% of your debt.  Might be easier to foreclose and settle with the bank for the difference, you know?

It sort of depends on your family's income, plus how underwater you are in your house, and if you think that you can afford your house (but just got behind) or not. 

This is where you should seek out a BK attorney. Most offer free consults. Then you will be advised in how your interests will be protected in your precise situation. It will also eliminate lots of misinformation, as the attorney who specialized in BK will know the ins and outs of the laws and keep your best interests protected. BK 'can' get you out of unsecured debt, (As in Chapter 7) but this is where you should get advise from an attorney who knows your individual situation.
 

[BetsyS]

Good to know about federal bankruptcy (I didn't know that).  I HEARTILY agree that talking to a bankruptcy attorney is very helpful.  If nothing else, you'll know what's coming, and it takes a lot of the stress of the unknown out of the situation. 

[~Boudicca~]

Does this actually happen?  We just got a Chapter 7 bankruptcy discharge in July.  I am a SAHM, and with my DH's salary we made under the median income for a family of 4 in our state.  I don't recall my lawyer mentioning anything at all about the judge using hypothetical income as a reason for throwing out a bankruptcy case, I probably would have been a nervous wreck. 

We had to verify that our income was under the median (if we made over then there would be presumption of abuse), submit an audit, take a pre-filing credit counseling course, show up for the 341 meeting (where your creditors have the opportunity to contest your case--none came--and we were sworn in by the trustee to make sure that the info we were submitting was legit), take a pre-discharge credit/budgeting course, and then that was it. 

Anyway OP, it doesn't hurt to talk to a BK lawyer.  Your initial meeting will be free and they can help you figure out what would be the best route for you to take.

Here are some sites you need to check out.

http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter7.aspx

http://www.bkforum.com/

Originally Posted by BetsyS 

Well, the benefit of foreclosure above bankruptcy is that you actually get out of the debt.

In my state, the bank *can* (but doesn't always) come after you for the difference between what your house sells for and what you owe.  If your house sells for $50,000 less than what you owe, that's $50,000 you owe, not the entire mortgage amount, you know?

If you file bankruptcy, the judge decides if you actually get your slate wiped clean or if you just have a restructuring of the debt.  In my state, the median income is $70,000.  If you make near that, then the debts will be restructured.  Depending on the judge, if you are a SAHM, he/she might not accept your income as $0.  He/she might decide that you could make $35,000, say, and factor that into your family's income.  So, you'd head into bankruptcy court thinking you'd get a clean slate, and you end up paying 100% of your debt.  Might be easier to foreclose and settle with the bank for the difference, you know?

It sort of depends on your family's income, plus how underwater you are in your house, and if you think that you can afford your house (but just got behind) or not. 

[BetsyS]

This is just what our lawyer told us.  It probably is one of those things that varies widely by jurisdiction. 

Originally Posted by ~Boudicca~ 

Does this actually happen?  We just got a Chapter 7 bankruptcy discharge in July.  I am a SAHM, and with my DH's salary we made under the median income for a family of 4 in our state.  I don't recall my lawyer mentioning anything at all about the judge using hypothetical income as a reason for throwing out a bankruptcy case, I probably would have been a nervous wreck.