Kentucky Bankruptcy Law

Counsel with Care

Bankruptcy versus Foreclosure

I was asked a question today by someone who had fallen behind on their house payments. They asked if it would be better for them to file bankruptcy or to go through a foreclosure proceeding. Unfortunately, this is the wrong question. It really is not a choice between one or the other unless a bankruptcy will allow you to keep the house. If you go through a foreclosure and the house is auctioned, there will certainly be a deficiency debt remaining.

A deficiency debt is when a house (or car for that matter) is auctioned off for less than what is owed. Many people think there debt is satisfied by the foreclosure on their house (or repossession of a car), but it is not. That deficiency debt can lay there for years. Often it is sold to a credit collection company. Eventually, though, they will come to collect. They will file a lawsuit at some point.

So, if you go through a foreclosure then you will also end up going through a bankruptcy. The actual question is whether you should go through a Chapter 7 or through a Chapter 13. The answer to this comes by deciding two things: 1) do I want to keep the house, and if I do, 2) can I afford to keep the house. I will take this question up in my next post.

July 12, 2013 Posted by | Bankruptcy, Chapter 13, Chapter 7, Foreclosure, Planning, Pre-filing planning | , , , , , , , , , | Leave a comment