Is It Better to File for Bankruptcy or Foreclose on Your House?

 Posted on October 30, 2025 in Bankruptcy

When someone falls behind on mortgage payments, the financial pressure can feel crushing. Late fees build up, calls from creditors are relentless, and the threat of losing the home becomes real. In this situation, two main legal options come into play: foreclosure and bankruptcy. Understanding the difference can help you decide which route is right for you.

Attorney Colleen Thomas is an experienced McHenry County bankruptcy and foreclosure attorney. If you are worried about losing your house, contact us today and let us help. 

What Happens in a Foreclosure?

Foreclosure is the legal process that allows a lender to take ownership of a property when the homeowner defaults on mortgage payments. In Illinois, foreclosure is judicial, meaning it goes through the court system.

Once the complaint is served, the homeowner has 30 days to respond. If he or she does not, the lender can ask the court for a judgment of foreclosure and sale. The property is then sold at auction, and the proceeds go toward the outstanding mortgage balance. If the sale does not cover the entire debt, the lender may seek a deficiency judgment for the remaining amount under 735 ILCS 5/15-1508(e).

Foreclosure severely impacts a homeowner’s credit score and can stay on his or her credit report for up to seven years. In addition, the homeowner loses the property and may still owe money if the home sells for less than what is owed.

What Happens in Bankruptcy?

Bankruptcy, by contrast, is a federal court process designed to help individuals eliminate or reorganize debt. There are two main types of consumer bankruptcy: Chapter 7 and Chapter 13.

Chapter 7 bankruptcy, often called "liquidation bankruptcy," allows qualifying debtors to discharge unsecured debts like credit cards and medical bills. Some assets may be sold, but Illinois exemptions often allow homeowners to keep things like clothing, furniture, and in many cases, equity in a primary home.

Chapter 13 bankruptcy, known as "reorganization bankruptcy," allows individuals with steady income to create a repayment plan lasting three to five years. This plan can include past-due mortgage payments, letting the homeowner keep his or her house while catching up on arrears.

When a bankruptcy case is filed, the court immediately issues an automatic stay, which halts all collection activity, including foreclosure proceedings. This means that once bankruptcy begins, the lender must stop the foreclosure process unless the court grants special permission to proceed.

Comparing Foreclosure and Bankruptcy

The choice between bankruptcy and foreclosure depends largely on the homeowner’s situation. Bankruptcy offers broader debt relief but can affect all areas of credit. Foreclosure deals specifically with mortgage debt, but does not eliminate other financial obligations.

Bankruptcy can be a better option if the homeowner:

• Wants to stop a pending foreclosure and keep the home through Chapter 13

• Has significant unsecured debt that cannot be managed

• Needs immediate protection from creditor actions

Foreclosure may be more appropriate if the homeowner:

• Cannot afford the mortgage even after restructuring

• Does not qualify for bankruptcy due to high income or other factors

• Wants to walk away from the property and start over financially

While foreclosure directly affects home ownership, bankruptcy offers the possibility of rebuilding credit sooner because debts are formally resolved through the court.

Contact a Kane County, IL Bankruptcy Lawyer

Choosing between bankruptcy and foreclosure is not an easy decision, but you do not have to face it alone. At The Thomas Law Office, we will review your financial situation, explain your options, and help you make a plan. Contact a McHenry County, IL bankruptcy lawyer today at 847-426-7990 to schedule a consultation and learn whether bankruptcy or foreclosure is the better solution for you.