Legal Question in Bankruptcy in California

bankruptcy vs. foreclosure

My parents in law are in a tough situation. They are unable to make their mortgage payments due to adjusting interest rates. They are trying to do a short sale and the 2nd lien holder will go through with it (basically getting nothing but 2000 dollars) only if they file bankruptcy. I imagine the other option is foreclosure. First, is their a difference between filing bankruptcy on the 60,000 dollars they owe on the 2nd mortgage and a total bankruptcy or are they the same thing. Second question is which one is worse, foreclosure or filing for bankruptcy? Does one stay on your record longer and does one look worse to potential creditors?


Asked on 1/19/07, 3:12 am

1 Answer from Attorneys
Carl Starrett Law Offices of Carl H. Starrett II

Re: bankruptcy vs. foreclosure

I don't know that you can objectively say that a foreclosure is better or worse on your credit report. A bankruptcy can stay on your credit rating for up to 10 years vs. 7 for the foreclosure, but I also know of people who've managed to get their credit back into the 700s within 12 months of receiving a bankruptcy discharge.

Your parents should consult a local bankruptcy attorney about the consequences of a short sale. Legally, debt forgiveness is a form of income. If they do complete a short sale before the bankruptcy, they might have a huge taxable event. They might be better off filing for BK now and letting it go foreclosure.

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Answered on 1/19/07, 11:55 am


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