Foreclosures vs. Bankruptcy

**doodah12** · 12-13-2010, 02:23 PM

Hi,
I'm hoping someone could help with some advice regarding my situation. I'm a homeowner who invested in 2 rental properties during the height of the market. Since then because of the subsequent housing bust, both my properties are underwater, and me and my wife have basically maxxed out all our credit (about $50,000) trying to keep the mortgages paid. Rentals have been slow and infrequent, and we've fallen behind on payments, and one property is at the beginning of the foreclosure process. We've had both units on the market for almost 2 years and have lowered the prices where we've lost all equity, but would be able to pay off the note, but both remain unsold. I want to know how much of a difference there would be to our credit if we let both units be foreclosed and try to get them off our balance sheet, versus going through personal bankruptcy, and losing the units and eliminating much of our consumer debt. I've felt that with these later payments and possible foreclosure(s), we're just delaying the inevitable, and would get a fresh start through bankruptcy. I make a good salary, but every month I have to pay 3 mortgages, and we don't have anything left over to live properly. Any advice on bankrtuptcy vs. foreclosure (impact on credit reporting) would be very helpful, thanks.

**Magic69** · 12-13-2010, 06:13 PM

Well, the bottom line is that either foreclosure or bankruptcy will seriously harm your credit. You know that part already. Both will stay on your credit report for 7-10 years and both could be non-factors for getting a new mortgage in as little as two years (FHA).

But here's the thing... My understanding is that you will have the foreclosures whether you declare bankruptcy or not. So really it is a matter of whether you want to tack on the BK now to take care of your other stuff and get it all in repair-mode at the same time or just call it good with the foreclosures on the rentals. That probably depends on what the rest of your situation looks like (50k in the hole is probably enough to just go BK and get it all done now, but perhaps you feel differently).

Anyway, great question and I hope some other members will chime in with their opinions as well. It'd be great if you share what else you find out during this process and how things turn out. Best of luck!

**doodah12** · 12-14-2010, 01:02 AM

I'd also like to hear other members opinions also, thanks.

**doodah12** · 12-14-2010, 01:09 AM

MagicRat69 (I'm a huge Bruce fan too,) I had another question, will the 2 rental properties be totally discharged in the bankruptcy, meaning, will I have to cover the deficiency balance, as I would in a regular foreclosure?, also what about a home equity line of credit secured against my residence, I assume that is not dischargeable? Thanks again for your help.

**Magic69** · 12-14-2010, 11:30 AM

My understanding is that the BK would take care of any negative equity in the foreclosures for you and the HELOC... you're probably right, but it might be possible to have that debt rolled into the BK as well, depending on the type you do.

**palomavictoria** · 02-18-2011, 05:23 AM

Well, Foreclosure is filed by the lender if the borrower fails to pay the monthly payments. But the filing of a foreclosure does not mean that you have already lost. While Bankruptcy is a legal action taken by someone who can not pay his debts. It will stop all proceedings against the debtor, the debtor is in bankruptcy. Thus, the right mortgage lender to suspend all legal action including the closure of operations.

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