Credit Scores and Bankruptcy / Foreclosure / Short Sale

I am often asked whether the impact on one's credit score is dramatically different if one chooses to file bankruptcy, allow a home to go to foreclosure, or to sell a home through a short sale.  Bills.com has an article from April of 2011 describing information provided by Fair Isaac & Company (the owner of the FICO score formula).  As always, linking to this information or discussing it does not constitute legal advice.  I am not suggesting that you rely on this information. Seek legal counsel before making decisions that affect your credit score.

The information provided by Fair Isaac & Company indicates there is not a significant difference.  The full Bills.com article provides more background. The following table is from Bills.com which provides the source as Fair Isaac & Co.

Harm to FICO score

Consumer A Consumer B Consumer C
Starting FICO score ~680 ~720 ~780
FICO score after these events:
   30 days late on mortgage 600-620 630-650 670-690
   90 days late on mortgage 600-620 610-630 650-670
   Short sale / deed-in-lieu / settlement (no deficiency balance) 610-630 605-625 655-675
   Short sale (with deficiency balance) 575-595 570-590 620-640
   Foreclosure 575-595 570-590 620-640
   Bankruptcy 530-550 525-545 540-560

Time to Full Recovery

Consumer A Consumer B Consumer C
Starting FICO score ~680 ~720 ~780
FICO score after these events:
   30 days late on mortgage ~9 months ~2.5 years ~3 years
   90 days late on mortgage ~9 months ~3 years ~7 years
   Short sale / deed-in-lieu / settlement (no deficiency balance) ~3 years ~7 years ~7 years
   Short sale (with deficiency balance) ~3 years ~7 years ~7 years
   Foreclosure ~3 years ~7 years ~7 years
   Bankruptcy ~5 years ~7-10 years ~7-10 years

As you can see, there is sigifican overlap between categories and types of sales or financial action.  For example, someone starting with 720 credit who sells a home short with a deficiency might have a FICO score of 580.  That same person, emerging from bankruptcy, might have a FICO score of 535.  Under both circumstances, it takes seven years for the individual's credit to recover (and it might take an additional three years for a credit score recovery under a bankruptcy).

Is it worth preserving 45 FICO points to work for months--perhaps a year or more--to short sell a home?  Do the added advantages of bankruptcy (elimination of other unsecured debt, for example) outweigh that small point difference?  That is a question each person facing the situation must consider and weigh.