Sometimes, making a decision means choosing the lesser of two evils. The downturned economy, high unemployment numbers and upside-down real estate market has left millions of homeowners to choose between bad and worse: Is it better to lose your home in a foreclosure or to file for bankruptcy protection? There's a trick to answering this question though, because first you would need to ask yourself some questions about what's important to you.
Do you want to keep the home or is it okay to let it go? If keeping the home is important to you, you need to attempt to stay there, whether its by loan modication, mortgage refinance, or a bankruptcy that excludes your home. If you'd rather give your home up just to be able to walk away free and clear, look into doing a Deed-in-Lieu or a Short Sale.
Is your credit score important to you? There are a lot of reasons to keep your credit rating as high as possible, because you need good credit to purchase things. Additionally, some employers require that their employees' credit stays in good standings. Your situation would go from bad to worse if your foreclosure or bankruptcy caused you to lose your job. Although foreclosure and bankruptcy both impact your credit score negatively, they both have different impacts for different lengths of time. A foreclosure will remain on your credit report for seven years, but a bankruptcy sticks to you for 10.
Do you want to own another home later? When you file for bankruptcy and your bankruptcy doesn't involve a house, future mortgage lenders will be more understanding of your situation and are more likely to lend to you. On the flip side, a foreclosure on your record is a red flag to mortgage companies. You may never be able to finance another home again, based on this one foreclosure. So if you are planning to purchase another home sometime in the future, you need to do everything that you can to avoid foreclosure. Look into short sales or loan modifications.
If you decide to travel down the bankruptcy path, be aware that there are many different types of bankruptcy and it's important to choose the correct one for your specific situation. Sometimes, you can declare bankruptcy on everything except for your home, which will give you the option to stay in your home or sell it to regain some of your losses.
Before deciding to accept foreclosure or bankruptcy as a necessity, you should talk to a professional who can learn about your specific situation and guide you in the right direction.