If you have access to any kind of income, then Chapter 7 bankruptcy should nearly always be avoided if you're faced with foreclosure.
The main reasons for saying this, are that even though it will rescue you from creditors and the burden of debt, Chapter 7 will totally destroy your credit rating for many years to come, and what's worse is that the majority of people that use Chapter 7 end up losing their homes anyway.
After appraisal, if the value of your property is found to be at least 10% higher than what is owing on it, then it will more than likely be forced into foreclosure, and any profits from the sale will be used to discharge as much debt as possible.
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So, the bottom line is, that if the equity in your home exceeds 10% and you're employed, then don't even consider Chapter 7.
Resorting to a Chapter 7 bankruptcy would also mean than you'd find it very hard and very expensive to get any kind of loan for several years, and that applies to a mortgage, a personal loan, and to an auto loan too.
Something else, which is a little known side-effect of Chapter 7, is that many people that file for it later have problems getting a job. More and more employers now check a potential employee's credit record and if they see that they filed for a Chapter 7, then they'll often assume that he's irresponsible and unreliable as well.
So What Makes Chapter 13 Better?
When you file for Chapter 13, your debt isn't discharged, but it gets consolidated instead, thus allowing a person to begin debt repayment without forfeiting their property. Chapter 13 does require however that you you some kind of income, and the court will also set up a payment schedule that must be adhered to.
We now need to look at the best way to sell a home when faced with foreclosure. If you need to sell your home to avoid foreclosure then there are really only two practical choices available to you. Either you can sell to a Realtor or to an Investor.
I haven't suggested advertising and selling your house privately as a "practical" alternative, because not only does it take a fair amount of specialized knowledge, but it would also most certainly require a lengthy amount of time to complete the sale, and there are many additional fees involved, which would have to be paid up front.
A combination of time-frame and expenses therefore mean that selling privately would almost certainly be impractical for somebody already looking bankruptcy in the eye. A workout agreement could be an alternative option however.
A workout agreement is by definition, a mutual agreement that is agreed upon by both the borrower and the lender that reschedules loan payments and modifies the payment terms by extending the original maturity. It would more than likely be possible to lower your monthly mortgage payments a little by way of a workout agreement, but the monthly mortgage payment is seldom the only reason that a person is forced into bankruptcy.
Selling To An Investor Is Often Best The Best Way
Selling to an investor will prevent the foreclosure from appearing on your record; the debt will appear as having been paid; and an added plus is that any foreclosure process that might be in progress will be stopped almost immediately.
What's more, it's nearly always possible to leave the house in an orderly manner, and since the investor is the one that will have to pay for inspections and repairs, a lot of unnecessary worry is removed from a highly stressful situation.
The only real drawback to selling to an investor, is finding one that can make a deal that is acceptable to the lender. The problem being that the investor will want to pay a sum that will allow him to make a profit, whereas the bank will want minimize its loss.
The Positives And Negatives Of Listing With A Realtor
If a person isn't under any real time pressure, then selling via a Realtor could well be the way to go. It might be possible to end up with some cash from the sale, and the time it takes to sell the home can be spent looking for a place to rent, or even to buy, if the luxury of downsizing to a different home is an option.
Be aware though, that in addition to the lengthy time-frame that will most likely be necessary, that there will be the Realtor's commission, and various legal fees that you'll have to pay. What's more, the potential buyer will almost certainly insist that you pay for the cost of a home inspection, and should any problems be discovered, then the cost of fixing them will most likely be deducted from the agreed sale price.
You now have a large amount of information that should allow you to make an informed decision as to whether to go with a Realtor or an investor, and if you're forced with having to choose between Chapter 13 and Chapter 7, then it should now be clear which one you should choose.
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