Filing for bankruptcy and foreclosing on a home are two very different things. Before you consider either or even both, it is important to understand the difference and how they may be related.

The two most commonly used bankruptcy laws under which individuals can file, differentiate between liquidation, Chapter 7 bankruptcy, and reorganization, Chapter 13 bankruptcy. Bankruptcy laws provide the legal elimination of debt. This means that when you file for bankruptcy you are protected from your creditors going after your personal property when you have become insolvent and can no longer pay your creditors what you owe. Therefore, if you do qualify for bankruptcy, you are the one who voluntarily initiates the bankruptcy filing by filing for it in your federal district court. Bankruptcy is typically governed by federal law, so the laws are uniform across all states with a few exceptions.

One of the biggest differences between bankruptcy and foreclosure is that you may be forced into foreclosure if you can longer make your mortgage payments. Your lender may take legal action resulting in you having to foreclose on your home or it just may be the best strategic option left to you. In foreclosure proceedings your lender may repossess your home as a collateral for the amount you owe and resell it to pay for the remaining balance on the home. The time frame differs from state to state but generally you can stay in the home for about a year in states where mortgages are used, opposed to states where trust deeds are used in which case you have less than four months. If it turns out that you have the means to make missed payments, you can reverse foreclosure action, the so-called period of redemption, by paying for all foreclosure costs, back interest and principal payments to gain repossession of your property. It is advisable to consult the services of a real estate lawyer in this case.

If you file for bankruptcy and also foreclose on your home, understand that after the foreclosure has started, your bankruptcy filing will grant you an “automatic stay” provision. This will immediately halt foreclosure proceedings at least for a given period of time.

Although bankruptcy and foreclosure are two separate events, you can strategize with your bankruptcy attorney to have these two events overlap and create a workable solution if you decide to proceed with both.