Misconceptions

• You do not have to declare bankruptcy if your home is foreclosed on. Bankruptcy is a discharge or reorganization of all your debts, while foreclosure only affects the mortgage on your home. Foreclosure alone does not entail bankruptcy.
  
  

Considerations

• Bankruptcy is sometimes used as a way to avoid foreclosure. If you file Chapter 13 bankruptcy, your debts are reorganized to allow you to pay them off. If you qualify for Chapter 7 bankruptcy, unsecured debt will be discharged, but you will be able to keep your home.
  
  

Effects

• While foreclosure and bankruptcy are damaging to your credit score, foreclosure is seen as less harmful. Bankruptcy and foreclosure will stay on your credit report an average of seven years.