Foreclosure and bankruptcy are common terms in the lives of people who are unable to pay their bills due to reasons like huge loss in the business, poor investment decisions, mismanagement of funds and alike.

Foreclosure:

Foreclosure refers to a legal procedure through which a mortgage holder, be it a bank or private individual, can seize the property of a borrower who has failed to make timely payments on a mortgage. The lender must obtain a court order to seize the property, which it may then sell to satisfy the debt. The process of foreclosure, however, does not just automatically permit the mortgage holder to take possession of the property and evict the owners right away. The legal action of reclaiming a property through foreclosure comprises of several stages and generally, the individual state foreclosure laws define the details of these stages. Under most cases, the foreclosure will allow the bank to regain the property as it is collateral for a now-defaulted mortgage loan, but the lender is required to follow some specific steps.

The three important stages of foreclosure are the pre-foreclosure stage, the lawsuit stage, and the sheriff sale of the property.

Bankruptcy:

On the other hand, bankruptcy is of two types i.e. Chapter 7 and Chapter 13 bankruptcy. In a Chapter 7 bankruptcy, the court may pronounce that certain unsecured debts like medical bills, and credit cards are discharged, implying that a borrower does not have to pay them. With lesser debts to pay, it becomes relatively simple for a borrower to pay his or her monthly mortgage payments. In addition, Chapter 13 bankruptcy is a court ordered payment plan during which a borrower can pay any mortgage over a period. Under this, the borrower is not forced to pay a huge lump sum amount, thereby allowing him to catch up on his mortgage payments and to keep his mortgage and home intact.

In short, Bankruptcy is a legal term saying a person or business is unable to pay debts. It is either voluntary filed in court by the person in question or involuntary if filed in court by the creditor; whereas, foreclosure is loss of property due to inability to pay a debt.

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