I just noticed this excellent post from Robert Doggett at Texas Rio Grande Legal Aid on foreclosure buzz:
http://foreclosurebuzz.org/2009/09/21/foreclosure-guides-hide-bankruptcy/
It is not surprising that while a lot of borrowers have received foreclosure notices, they do not know that filing bankruptcy is more often than not a better option than walking away from their home. As this article points out, bankruptcy forces lenders to work with borrowers. The lender must accept a payment plan allowing the borrower to stay in the house instead of foreclosing and kicking them out.
Foreclosure does not always erase your mortgage debt. If you owe more than your house is worth, you may end up owing the bank the difference, which is called a deficiency judgment. Though rare in Texas, a borrower can lose his or her home to foreclosure and still owe the bank the difference between the value of the home and the amount of the loan. This could have been avoided by filing Chapter 13 before the date of the foreclosure sale.
Most borrowers also do not realize that a bankruptcy may be better for your credit than sitting back and doing nothing. Filing bankruptcy allows you to have a fresh financial start, often resulting in your credit score recovering within a couple of years, whereas a foreclosure will result in a poor credit score for many years to come. I have seen some of my clients approved for conventional mortgages less than three years after filing bankruptcy.
