By: Jeena Cho

Q: Is it better to just foreclose on your house or claim bankruptcy? We just have to get out of our mortgage, it is killing us.

A: It depends on if you live in a recourse or non-recourse state. In California, if you used the money from the mortgage to purchase your home, it’s non-recourse. Hence, you can simply walk away from the mortgage and not have any consequences if the property should sell for less then the loan value. However, if the money was not purchase money, such as a HELOC you borrowed after purchasing the home, then you are on the hook. Bankruptcy would only make sense if you will be responsible for the deficiency. It may also make sense depending on how much other debt you owe.