So what is worse, bankruptcy or foreclosure? Which will have the biggest impact on my credit score? Both bankruptcy and foreclosure will have serious negative affects on your personal credit report and your credit score as well. With re-established credit after a bankruptcy and/or foreclosure you can possibly qualify for a good mortgage once again in as little as 24 months. Therefore, it is very difficult to say one is worse than the other, but the bottom line is that they are both very bad for you and should be avoided if all possible.
Many times qualifying for a mortgage after a foreclosure is more difficult than applying for a home after a bankruptcy. With that said, that could possibly lead you to believe that foreclosure is worse than bankruptcy. Most people who have a home foreclosed upon end up filing bankruptcy as well.
Bankruptcy and Foreclosure filings are public records, however no one would know about your proceedings under normal circumstances. The Credit Bureaus will record your bankruptcy and a foreclosure. Bankruptcies will remain on your credit record for 10 years while foreclosures can stay on your report for up to 7 years.
In some cases, one can refinance out of a Chapter 13 Bankruptcy with a 12 month trustee payment history and a timely mortgage history. It is much more difficult to obtain financing with a foreclosure on your record.
Foreclosure is worse then bankruptcy because you are actually losing something of value, your home. Once you are in foreclosure you will lose any and all equity in your home. If there is no equity in the home you will be responsible for the remaining balance after the property auction. With chapter 7 bankruptcy all of your unsecured debts are erased and you start over and in most cases you will not lose anything other then your credit rating.
Foreclosure is worse because of the loss of value. You will not receive any compensation for the equity in your home if it proceeds to foreclosure.