Foreclosures vs. Short Sale: Which One Affects Your Credit More?

Your mortgage is likely your biggest expenses. If you start having trouble with debt, you are likely to continue paying your mortgage, since that is your most important expense. But over time, as your debts continue to mount, you may find it harder and harder to pay that large expense every month. Eventually, you may start falling behind on your mortgage payments. At first, you may just get notices to pay, accompanied by late fees, but after more time passes, you may start getting warnings about potential foreclosure action.

To head off a foreclosure, you may start thinking about a short sale. But really, you might need to talk to a bankruptcy attorney in Gilbert about your long-term options for debt relief. Not only will your credit score recover more quickly, but it can also help you to save your house (if you want to save it).

Couple reading a foreclosure notice

Foreclosure

More people know about a foreclosure than they do a short sale. Your mortgage lender can initiate foreclosure proceedings against you if you fall behind on your mortgage. You will get ample notice of such proceedings and given a chance to come current on your mortgage. But eventually, if you do not pay on time, your lender can have you evicted and can sell your house at auction to try to recoup what you owe on the mortgage. If the house sells for more, you will get the surplus. If it sells for less, you may still owe your lender.

A foreclosure will be a massive hit to your credit. Exactly how many points you will lose depend on a variety of factors, including your overall credit history before that, where you live, and more. However, financial analysts report that you can experience a drop of as much as 300 points.

Short Sale

With a short sale, you are taking a somewhat more proactive approach to stopping a foreclosure, but the end result is the same: You lose your house. A short sale happens when you sell your house for less than it is worth. Once you have a buyer, you have to apply to have the short sale approved by your lender, which will also require you to provide evidence of hardship. If the short sale is approved, you can often walk away without owing anymore money.

Like a foreclosure, a short sale will make a significant dent in your credit score. Analysts disagree on whether a short sale will hit your credit worse than a foreclosure, but general consensus seems to be that scores will fall about the same for both. In some cases, short sales come out slightly ahead in terms of credit score since they are seen as more proactive.

Bankruptcy

If you are struggling so much with debt that you are unable to pay your mortgage, it is worth talking to a Gilbert bankruptcy attorney. By filing Chapter 7 bankruptcy, you can discharge unsecured debts that are eating up your disposable income, such as credit card payments, medical bills, and personal loans. You can’t discharge any unpaid mortgage debt, but you may be able to free up enough money that you can pay back what you owe on your mortgage finally.

Alternatively, you can file Chapter 13 bankruptcy in Gilbert to restructure your debt so that you can afford it in one monthly payment. Your unpaid mortgage debt would be included in that repayment plan, which lasts for three to five years. You may be able to save your house from foreclosure by filing for Chapter 13, while also getting your debt under control. At the end of the repayment period, you may be able to discharge remaining debt, as well as any second mortgages that may be worth more than your house is now.

In addition to all these benefits, filing for bankruptcy will also be less of a blow to your credit than a foreclosure or short sale, and you’ll be able to start building your credit more quickly after all is said and done. Talk to a bankruptcy lawyer about how you can use bankruptcy to get the debt relief you need.

Call Gilbert Bankruptcy Lawyers to learn more. We represent individuals who file Chapter 7 bankruptcy or Chapter 13 bankruptcy. If you own a business, we can also represent you in Chapter 11. Our goal is to maximize your debt relief in as short a time as possible. We’ll review your finances and help you understand the best strategy. Call us today to schedule a free consultation with a bankruptcy lawyer.

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Gilbert Bankruptcy Lawyers
Office: 480-448-9800
Email: [email protected]
Website: https://gilbertbankruptcylawyers.com