What is the Difference Between Bankruptcy and Foreclosure?
🆚 Go to Comparative Table 🆚The main difference between bankruptcy and foreclosure lies in their consequences and the scope of their impact on debts and property. Here are the key differences:
- Scope: Foreclosure affects only the home, while bankruptcy affects all debts.
- Debt Elimination or Repayment: Bankruptcy allows debtors to either eliminate their debts (Chapter 7) or establish a repayment plan for their debts (Chapter 13). In contrast, foreclosure focuses on recovering the mortgagee's money upon default.
- Initiation: In bankruptcy, the debtor initiates the process by filing a bankruptcy petition. In foreclosure, the lender initiates the proceeding to repossess and sell the property.
- Credit Impact: Both foreclosure and bankruptcy negatively affect credit, but a foreclosure remains on your credit report for 7 years, while a bankruptcy remains for 10 years.
When a debtor files for bankruptcy, an automatic stay is imposed, which suspends foreclosure proceedings until the bankruptcy case is resolved in court. This may allow the individual to keep their house, depending on their financial situation and the specific type of bankruptcy filed. The two most common forms of personal bankruptcy are Chapter 7, which covers all unsecured debt, and Chapter 13, which restructures debt so that monthly payments are manageable.
Comparative Table: Bankruptcy vs Foreclosure
Here is a table comparing the differences between bankruptcy and foreclosure:
Feature | Bankruptcy | foreclosure |
---|---|---|
Definition | A legal process to discharge or restructure debts | A legal process used by mortgage lenders to recover money when a homeowner defaults |
Credit Impact | Remains on your credit report for 7-10 years | Remains on your credit report for 7 years |
Debt Scope | Affects all debts | Affects only the home |
Debt Relief | Chapter 7 bankruptcy liquidates assets to pay debts, while Chapter 13 bankruptcy restructures debts into a 3-5 year payment plan | Foreclosure involves repossessing and selling the house to recover the lender's money |
Time Frame | Chapter 7 bankruptcy takes 3-6 months, Chapter 13 bankruptcy takes 3-5 years | Foreclosure process varies by state, but generally takes several months |
Housing Outcome | May allow individuals to keep their house depending on the type of bankruptcy filed | Results in the loss of the home |
Both bankruptcy and foreclosure have negative consequences for your credit score, but bankruptcy is generally considered the better option because it provides a more comprehensive debt relief solution and may allow you to keep your house.
- Bank Owned vs Foreclosure
- Bankruptcy vs Insolvency
- Liquidation vs Bankruptcy
- Auction vs Foreclosure
- Short Sale vs Foreclosure
- Bankruptcy vs Debt Consolidation
- IVA vs Bankruptcy
- Deed in Lieu vs Foreclosure
- Chapter 7 vs Chapter 13
- Receivership vs Liquidation
- Collateral vs Mortgage
- Loan vs Mortgage
- Lien vs Mortgage
- Creditor vs Debtor
- Mortgage vs Hypothecation
- Deferment vs Forbearance
- Mortgage vs Deed of Trust
- Bank Overdraft vs Bank Loan
- Banking vs Finance