| Factor | Bankruptcy (Chapter 7) | Bankruptcy (Chapter 13) | Foreclosure |
|---|---|---|---|
| Home Impact | May lose home; can discharge mortgage debt | Can save home via repayment plan | Lose your home |
| Credit Impact | 7-10 years | 7 years from filing | 7 years |
| Other Debts | Discharges most unsecured debt | Restructures all debts | Mortgage only; other debts remain |
| Cost | $1,000-$2,500 (attorney fees) | $3,000-$5,000 (attorney fees) | Cost of relocation + deficiency judgment |
| Future Mortgage | FHA: 2 yrs; Conv: 4 yrs after discharge | FHA: 1 yr (with court approval); Conv: 2-4 yrs | FHA: 3 yrs; Conv: 7 yrs |
When you file bankruptcy, an automatic stay immediately halts all collection actions — including foreclosure proceedings. This can buy you crucial time. In Chapter 13, you can use the stay to propose a repayment plan that catches up missed mortgage payments over 3-5 years while maintaining current payments. This is often the only way to stop a foreclosure once it's in process. In Chapter 7, the stay is temporary — if you can't pay the mortgage, the lender will eventually get relief from the stay and proceed with foreclosure. But even Chapter 7 can discharge the personal liability on the mortgage, meaning the lender can take the house but can't pursue you for any deficiency.
The Key Question: Do you want to keep your home? If yes and you can afford modified payments → Chapter 13. If no or you can't afford the home even with reduced payments → Chapter 7 may be better. Chapter 7 can discharge your personal liability for the mortgage while foreclosure takes the house — a "clean break." Always consult a bankruptcy attorney — this is not a DIY decision.