When paying your mortgage debt is beyond your means and you are facing the possibility of foreclosure, there are a couple of options available to you. These include allowing the foreclosure to happen; proceeding with a short sale; and filing for bankruptcy. Deciding which is the best choice for you can be a challenge, especially if you are interested in maintaining or rebuilding your credit score.  Let’s look at the factors that you should consider.

There’s no doubt that choosing any of these options will hit your credit score hard. Most short sales and foreclosures will drop your credit score by between 85 to 160 points, while a bankruptcy filing will drop it by 130 to 240 points.  But consider this: allowing your lender to foreclose on your house is not necessarily the end of the story. They can still go after you for any difference between the outstanding loan and the price at which the house sold at public sale. By contrast, if you choose bankruptcy this difference would be discharged. Another thing to consider is that if you pursue a short sale you will be more likely to qualify for a mortgage loan in the future.

Lenders tend to look more kindly at those whose histories include a short sale, and generally allow those who’ve chosen this route and who have a 20% down payment two years after the short sale takes place. Similarly, those who file for bankruptcy can qualify for a mortgage four years after their date of discharge, but those who have chosen foreclosure are required to wait 7 years from the date of the judgment entered against them, and also have to pay off any deficiency judgment.

Though many people believe that a short sale is more beneficial than bankruptcy when it comes to preserving or rebuilding your credit score, there are other things to remember, including the fact that short sales are not easy and can take a long time. Additionally, banks don’t always approve them, and the borrower can still be left in the position of needing to make up for the deficiency. Bankruptcies can be accomplished quickly and without the fear of being pursued for any shortfall in the amount that you owe the bank. Best of all, without these issues haunting you, you can begin rebuilding your credit quickly.

Contact our experienced bankruptcy attorneys today!