Keeping Your Home

• If you can't bear the idea of parting ways with your home, consider filing Chapter 13 bankruptcy. You must have steady income in order to qualify for Chapter 13. Chapter 13 debt repayment works by allowing you to stretch your delinquent loan balance over the course of several years using your future income to secure the debt. This process does not work if the lender has already filed foreclosure. If this is the case, filing bankruptcy can help delay the foreclosure proceedings, but you could still lose your home.
  
  

Deficiency Judgments

• One of the major downsides to foreclosure is the possibility of a deficiency judgment. Instead of releasing you from the financial strain that led to the loss of your home, some lenders pursue homeowners even after foreclosure in the form of a deficiency judgment. This can be filed immediately following the loss of your home or in several years after you've regained financial stability. The length of time your lender can wait to file a judgment varies by state. Consult with a HUD-certified foreclosure counselor to learn your state laws on deficiency judgments.
  
  

Taxes

• Taxes are a foe many people love to hate. Following foreclosure, if the lender decides to forgive your debt, you may owe the IRS instead. Mortgage loans are not considered debt as long as you are legally obligated to your debt payments. However, when the lender releases you from responsibility, you may owe additional tax. As long as your home is your primary residence and the amount of your forgiven debt is less than $2 million, you are protected from taxation under the Mortgage Debt Relief Act of 2007.
  
  

Credit Score

• Both bankruptcy and foreclosure wreak havoc on your credit ranking. However, bankruptcy leaves a much deeper stain. According to CNN Money, your score could drop as much as 240 points following bankruptcy. However, with a foreclosure, your score drops between 85 and 160 points. The extent to which your score drops is dependent upon the status of your other credit accounts. Since all your credit accounts are impacted in bankruptcy, your credit score drops significantly. Bankruptcy also remains on your credit score up to 10 years whereas a foreclosure is erased in seven years. While foreclosure or bankruptcy remains on your report, getting approved for new credit will be a challenge.