Homeowners often wonder if a deed in lieu of foreclosure or a bankruptcy represents a better option, imagining there exists a universal ranking where one foreclosure solution stands above another in every case. Deciding if a deed in lieu of foreclosure or a bankruptcy "fits" your situation should be explored exactly as I posed the statement; the answer becomes a matter of fit. In other words, picking a deed in lieu of foreclosure or a bankruptcy should not be compared to selecting a pair of brown shoes over black ones, nor even wanting Prada designer shoes over Hush Puppies. Most times selecting deed in lieu of foreclosure or bankruptcy never becomes a personal choice to ponder your individual preferences, as might occur for some debtors electing either bankruptcy or debt settlement. Comparing a bankruptcy to a deed in lieu of foreclosure becomes much more like deciding between a size 7 and a size 10. One fits your mortgage and avoiding foreclosure plans and the other does not.

As a prerequisite, I need to mention that in most cases the time for asking about these specific options to help stop foreclosure comes after you failed with attempts at repayment plans, modifications and after the foreclosure process has begun or will begin shortly. For people who already tried a do it yourself modification and failed you might look into professional mortgage help. If you never took the time to compare ways to solve your mortgage problems you should take a step back and get other help in avoiding mortgage foreclosure, looking at a deed in lieu of foreclosure or a bankruptcy would be premature for a homeowner who just one time missed a mortgage payment or did not yet exhaust other ways to save their home including full mortgage reinstatement.

Let us start by reviewing some background about these options for people in serious mortgage trouble and understand the choices. I'll assume you already read the deed in lieu of foreclosure FAQ so you realize that homeowners may only negotiate a deed in lieu of foreclosure after a reasonable attempt at a short sale. On the bankruptcy side, a chapter 13 bankruptcy and a chapter 7 bankruptcy operate in very different ways and each requires examination to answer our deed in lieu of foreclosure vs. bankruptcy question. Take a moment now to become familiar with all four of these foreclosure alternatives including chapter 7 vs. chapter 13.

Establish your goals; do you want to stay in the house in the long run? What debt do you need to deal with in addition to the mortgage debt; credit card debt,IRS tax debt, a potential mortgage deficiency? What do you have to work with for time and money? Can you afford a chapter 13 bankruptcy? What will your personal budget for housing be? Do you have time for a deed in lieu of foreclosure? Look at the choices in this order until you arrive at the solution fitting your financial circumstances:

1. Chapter 13 Bankruptcy

Of the choices explored in this article, only a chapter 13 bankruptcy provides a way to keep your home in the long run. Make sure you know what a chapter 13 is. Use the chapter 13 calculator to figure out if you could afford the reorganization plan payments. Learn about the chapter 13 process and requirements to make sure you qualify. If you have no other unsecured debt and do not want to keep the house anyway, skip right down to a short sale.

At this point you may want to take one more stab with a mortgage modification negotiator, but our discussion from here involves the best way to give up your property. We talked earlier about goals and debt. How much other debt to you owe? Did you explore you solutions to eliminate unsecured debt? For those with huge credit card debt, certainly over $50,000, who might need a chapter 7 due to circumstances aside from their mortgage trouble skip to the chapter 7 choice now. For more help those looking at who should file bankruptcy try the free automated evaluation tool at the Bankruptcy Opinion site. You might also wish to look to see if an overspending habit serves as the cause of bankruptcy in which case you need to deal with that too so that you do not end up in the same situation again.

2. Short Sale

Figure a short sale of your home requires 2–6 months lead time prior to a foreclosure sale. While at this point in examining short sale choices I'm assuming no equity exists in the home, for those at this stage with equity just put the house on the market and sell it. You do not need any permission from the bank for that.

3. Deed In Lieu Of Foreclosure

Since a deed in lieu of foreclosure occurs only after a failed short sale, you need 3–9 months before an auction to get everything done.

4. Chapter 7 Bankruptcy

Unless you arrived at this option due to your other debt, once you reached this point you may as well explore allowing the foreclosure vs. bankruptcy since the benefits of chapter 7 may not even help you.

So to the extent that each and every one of these options remains available there indeed exists an order of preference for deed in lieu of foreclosure or bankruptcy. Note that the earlier you address the situation the more options you get. In my dreams people would read all of these things before their first missed mortgage payment including the FAQs about emergency financial preparedness, cash allocation in a crisis and the emotional issues surrounding debt and foreclosure. In reality you stand now where you stand and the clock may not be turned back. Do the best you can moving forward and make the right choices from here without regret.