What's worse, bankruptcy or forclosure?

[EdytaHome]

What's worse on your credit report, bankruptcy or forclosure? My real estate agent is trying to tell me that it is much worse for your credit rating if you have a past forclosure plus bankruptcy on your credit report rather than just bankruptcy. She's trying to talk me into arranging a short sale on my house, which I'll be surrendering during bk anyway. She said it's the better way to go for my credit down the line. Is she right?
I thought that bk is the ultimate and much worse than forclosure, does it matter if you have them together as long as the property is discharged?
Thanks

[HHM]

Has the foreclosure proceeding already begun?

Also, check your real estate agents motives, she gets a commission on the sale of your house, so of course she will recommend a short sale, whereas, if you file BK, and surrender the house, she gets nothing.

Many people misunderstand credit scoring and somehow equate the length of time that something is on your credit report with how bad it is. Credit scoring doesn't work that way, the FICO algorithm is a very complicated weighting of many factors. In the acutal FICO algorithm, a Bankruptcy makes up a small percentage. Within the FICO calcuation, payment history makes up 35% of the score, and within that 35%, Bankruptcy is a minor factor, the main factors being, actual payment histor on accounts, type of accounts, past due items, etc etc. So bankruptcy is a small percentage of only 35% of what goes into calculating your FICO score.

Yes, Bankruptcy can stay on your credit report for up to 10 years, but with all the other factors, along with the passage of time (and assuming you maintain good credit habits after BK) the affect of the BK is negligable on your credit report over time.

[EdytaHome]

What about a forclosure, is that worse than a bankruptcy?
I do think that my agent would rather make money on the sale of my house rather than me just surrender it.

[HHM]

What about a forclosure, is that worse than a bankruptcy?
I do think that my agent would rather make money on the sale of my house rather than me just surrender it.

Foreclosure is certainly bad if you ever want to buy a house again. Many banks and mortgage companies use slightly different scoring models. FICO is just the most well known credit scoring algorithm, but there are dozens of different scoring models for different scenario's.

I don't have any hard info on whether forclosure is worse (again, you really can't take any one factor out of the greater context of the FICO score). But I think if you want to buy a house in the future, you are probably better off with a Bankruptcy than a foreclosure.

Incidently, why do you want to surrender the house. Why not do a chapter 13 and make up the past due payments. Or at the very least, the chapter 13 will buy you some time to sell the house at market value.

[EdytaHome]

I lost my job and my husband already works out of state in Chicago. We actually have 2 houses, one which is rented out. Our plan is to surrender both houses and move on. We have plans to live with my husbands mother for a while, rebuild our credit, and later buy a house. My mother in law only lives in the US part of the time, she's retired and has another house in Poland. Thanks for the info!
We filed Chp 7, Jan 13th and are awaiting the 341 meeting.

[EdytaHome]

I forgot to mention that we have no equity in either house. I would come up in the negative if I sold the houses. The new house which we're living in was bought only 5 months prior to me loosing my job and the other home has a second mortgage.

[rainmand]

What about a forclosure, is that worse than a bankruptcy?

------------------------------------------

From the Lender's perspective, foreclosure is worse than bankruptcy. Lenders hate seeing foreclosures on credit reports. I have more flexibility getting someone a loan with a bankruptcy on their record than a foreclosure. Referencing a FHA insured loan using standard guidelines (there are exceptions to these guidelines and my example doesn't include the exceptions), a debtor can get a home loan 12 months after filing chapter 13, 24 months after a chapter 7 discharge, or 36 months after a foreclosure.

[EdytaHome]

Thanks for the info.

[HRx]

From a general credit-worthiness standpoint, a Bankruptcy (Chp7) is worse than a Foreclosure.

-Todd

[get a mortgage]

Being in the mortgage industry I have seen both. Your Agent is correct if you want to look at it in a future lenders eyes.

If you have a foreclosure on your credit report and want to go and purchase a home the majority of lenders-A paper and even subprime lenders, require you to be three years out from a foreclosure. Yet if you just had the bankruptcy on your credit I would be able to get you into another home one day out of Bankruptcy.

Please note that this is not cut and dry. If you have had late payments on your report and your mortgage company has executed a NOD-Notice Of Default, this is the equivalant of a foreclosure. So, I don't want to lead you on the road to assume you can go purchase a home once your BK is discharged. One must know the entier picture before making that conclusion.

I hope this answered your question.

Jesse