What chapter of bankruptcy should I file to avoid a deficiency judgment? 12 Answers as of June 15, 2011

I currently own a house that I plan on renting and also plan on purchasing a new home for my primary residence. With my income, I would depend on the renter to pay me rent on time to pay all bills but I fear if the renter does not pay or if I cannot find a consistent paying tenant I will be unable to pay the mortgage on the home I'm renting and possibly go into foreclosure. I currently owe $92,000 on the home and zillow.com appraises it only at $60,000 so if I allow it to foreclose and the bank wins a deficiency judgment against me for the difference, can they go after my assets like my new primary residence home or my car or wages or direct deposits? If so, would I be able to avoid the deficiency judgment or a Federal Form 1099 if I filed bankruptcy? And what type of bankruptcy would I have to file? Chapter 7 or 13?

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Ellahie & Farooqui LLP
Ellahie & Farooqui LLP | Javed Ellahie
Deficiency judgment can be wiped out in Chapter 7 or chapter 13. If you do have equity in the new home, over and above the allowable amount, (check your State exemption laws) then all creditors have a right to the a pro-rata portion of the excess equity. There are tax consequences for forgiveness of debt income but filing a bankruptcy does eliminate taxes on forgiveness of debt income but there may be a capital gain portion that may remain. This is a complex tax questions and the answer will depend on your overall tax situation.
Answer Applies to: California
Replied: 6/15/2011
Bankruptcy Law office of Bill Rubendall
Bankruptcy Law office of Bill Rubendall | William M. Rubendall
You can avoid a deficiency judgment by filing chapter 7 or 13 and giving up your house. Also, there will not be a tax event meaning you won't get a 1099.
Answer Applies to: California
Replied: 6/15/2011
Janet A. Lawson Bankruptcy Attorney
Janet A. Lawson Bankruptcy Attorney | Janet Lawson
I can not fully answer this question as every state has different laws on when a deficiency judgement is possible. If you are that far under water now why would you want to hang on to it with all the risks and headaches associated with being a landlord? You need to consult with a lawyer in your jurisdiction.
Answer Applies to: California
Replied: 6/14/2011
Saedi Law Group
Saedi Law Group | Lorena Saedi
This will depend on what state you live in and what exemptions are available to you. I would suggest that you contact a bankruptcy attorney in your state to review your assets and equity in other property to determine your eligibility.
Answer Applies to: Georgia
Replied: 6/14/2011
Bankruptcy Law Office of Robert Weed
Bankruptcy Law Office of Robert Weed | Robert Weed
It sounds like you need to file bankruptcy. That would get rid of the deficiency and prevent a 1099. whether Chapter 7 or Chapter 13 is best for you? A good lawyer would probably spend half an hour or more getting enough information to answer that question.
Answer Applies to: Virginia
Replied: 6/14/2011
    Bird & VanDyke, Inc.
    Bird & VanDyke, Inc. | David VanDyke
    If your home is in California you probably won't need to file bankruptcy if it forecloses. If the home is in a state where they can get a deficency judgment against by way of judicial foreclosure then a chapter 7 would take care of it.
    Answer Applies to: California
    Replied: 6/14/2011
    Jackson White, PC
    Jackson White, PC | Spencer Hale
    Either chapter will protect you from a deficiency judgment. What you should consider is whether the state's anti-deficiency statutes protect you even outside of a bankruptcy.
    Answer Applies to: Arizona
    Replied: 6/14/2011
    The Law Offices of Robert L. Driessen
    The Law Offices of Robert L. Driessen | Robert L. Driessen
    You really should sit down with a local bankruptcy attorney. You may not even be a good candidate for bankruptcy.
    Answer Applies to: California
    Replied: 6/14/2011
    Carballo Law Offices
    Carballo Law Offices | Tony E. Carballo
    A deficiency judgment on a mortgage, if allowed in the state where you reside, would be dischargeable in either Chapter 7 or Chapter 13. The decision, therefore, on what chapter you should file is based on the amount of income you have earned over the past six months (since too much income could disqualify you from filing a Chapter 7) and whether or not there are arrears you need to pay in order to retain property (such as unpaid mortgage payments). Since it sounds like you are current on mortgage payments for the house you plan to rent, there would be no reason for you to file a Chapter 13 unless your income is too high to qualify for a Chapter 7 case. Any bankruptcy resolves the debt cancellation income issue (1099-C) which is a tax problem. Form 982 would need to be filed with the tax return in the year you receive the 1099-C form from the bank. You should consult with a bankruptcy attorney since there are other issues that need to be considered.
    Answer Applies to: California
    Replied: 6/14/2011
    The Law Office of Mark J. Markus
    The Law Office of Mark J. Markus | Mark Markus
    You can avoid the deficiency amount by filing bankruptcy. There may be other tax consequences depending on the timing of the foreclosure in relation to a bankruptcy case, and depending on your specific facts (such as the cost basis, and other factors). You would need to discuss that with a tax attorney. As for which chapter to file, that depends on a number of factors that have nothing to do with the type of debt that you owe. You need to have a consultation with a bankruptcy attorney in your area.
    Answer Applies to: California
    Replied: 6/14/2011
    Law Offices of Joseph A. Mannis
    Law Offices of Joseph A. Mannis | Todd Mannis
    Yes, you can avoid deficiency judgments by filing the bankruptcy. The question as to which chapter depends on your income/expenses. If you have surplus income, you'd probably have to be in a Chapter 13 whereby you pay at least a portion of your debts. If you do not have any surplus income each month, then you would file a Chapter 7 in which case you discharge all of your unsecured debt.
    Answer Applies to: California
    Replied: 6/14/2011
    Ashman Law Office
    Ashman Law Office | Glen Edward Ashman
    Your post cannot be answered without many things that you failed to tell us such as what state you live in, how much equity you have in your residence, your income, your expenses, your other debts, your other assets, and so on. Before making any decisions meet with an attorney who will review your situation. Note that most debtors do not get to make a choice. The numbers that work for a 13 usually disqualify you from a 7 and vice-versa.
    Answer Applies to: Georgia
    Replied: 6/14/2011
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