How is My Credit Score Affected by Bankruptcy, Foreclosure, or Short Sale?

If you are facing foreclosure on your home, you may wonder what your best options are. Would it be best to list the home for sale and try to do a short sale? Should you file a deed-in-lieu of foreclosure? Should you do nothing and let the foreclosure process happen? Should you consider filing a Walworth County bankruptcy? Find out below how each of these processes may affect your credit score.

 

How a Walworth County Bankruptcy, Foreclosure, and Short Sale Affect Credit Score

Walworth County bankruptcy credit scoreIf you go through with a short sale, deed-in-lieu of foreclosure, or a foreclosure, your credit score will drop 85 to 160 points (per FICO). If you file a Walworth County bankruptcy, your credit score will drop 130 to 240 points. However, don’t judge a book by its cover. A Walworth County bankruptcy is not necessarily the worst thing to do in these situations. Many other factors must be taken into consideration before making a final decision on what action is best for you.

 

Critical Criteria Important When Considering a Walworth County Bankruptcy, Foreclosure, or Short Sale

If you decide to go through with a foreclosure, you run the risk of the lender coming after you for more money. You may owe the lender the difference between the price your home sold for at public sale and what you still owe on your mortgage. Let’s say your home has a fair market value of $200,000 and it sold at public auction, after foreclosure, for $75,000. The financial lender can seek a judgment against you for the difference, which would be $125,000. That’s a lot of money, and another judgment on your credit report. However, if you decide to file a Walworth County bankruptcy instead, the $125,000 you would have owed the bank could be discharged in the bankruptcy proceeding and you would owe nothing. You do not even have to pay taxes on the forgiven debt. In this situation, a Walworth County bankruptcy looks like a much better option.

 

How a Walworth County Bankruptcy, Foreclosure, and a Short Sale Effect a Future Home Purchase

Do you plan on buying another home in the future? If so, then allowing a foreclosure to go through is not your best option. If you decide upon a bankruptcy, short sale, or deed-in-lieu of foreclosure, you will qualify for a home mortgage much sooner. Most banks follow Fannie Mae and Freddy Mac guidelines. Under these guidelines, if you place 20% down on your next home, you should qualify for a mortgage two years after performing a short sale or deed-in-lieu of foreclosure. If you have 10% to put down on a new home, you should be able to qualify for a new mortgage in four years. If you file bankruptcy, you will qualify for a mortgage two to four years from the date of your bankruptcy discharge, assuming you have been making all of your payments on time. If you let the foreclosure takes its course, you would not qualify for a new mortgage until seven years from the date of the foreclosure judgment. In addition, if the lender pursued a deficiency judgment against you for the difference between the price the home sold for at auction and how much you owed on the mortgage that deficiency judgment would have to be paid in full before you could close on a new home. In summary, if you are planning to purchase another home in the future, foreclosure may not be your best option.

 

Which Provides the Best Fresh Start Option: A Walworth County Bankruptcy, Foreclosure, or a Short Sale?

Although a Walworth County bankruptcy filing may initially drop your credit score, bankruptcy is the best option for a fresh start. During the time you are waiting to purchase another home, you can be rebuilding your credit and improving your credit score. Each person’s situation is different. If you are facing foreclosure, please seek advice from our real estate and bankruptcy attorneys. Please contact Wynn at Law, LLC for a free, initial bankruptcy consultation. Our experienced Walworth County bankruptcy attorneys can answer your questions and help you decide what the best option is for your specific situation. You can contact our Walworth County bankruptcy attorneys by phone at 262.725.0175 or by email via our website’s contact page. Wynn at Law, LLC has bankruptcy and real estate law office locations in Salem, Muskego, Delavan, and Lake Geneva.

 

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*The content and material on this web page is for informational purposes only and does not constitute legal advice.

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