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socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 39048
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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I am in NJ. If I walk away from a condominium that is becoming

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I am in NJ. If I walk away from a condominium that is becoming financially unbearable afford/live and my mortgage company foreclosed on me, wouldn't bankruptcy chapter 7 protect me from the lender trying to go after me. I am currently underwater, a property that is less than 200,000 in value and I owe the mortgage company about 300,000. For this reason, I am assuming that there is going to huge deficiency after any sale. I would like to know if the bankruptcy filing would protect me from the mortgage company to go after any deficiencies.
Also, I have some credit cards debt and would like to know and would like to know the possible tax consecuences of discharges of mortgage and credit card debts during a bankruptcy. wouldn't the IRS treat the discharges of debt as income to me and tax me on the amounts that get eventually discharged? What is the best way to protect from the IRS and lenders or best way to go about it. Any recommendations appreciated and recommendation of attorney in NJ also appreciated.
If you file bankruptcy before the property is actually foreclosed, then the discharge in bankruptcy also discharges the associated tax obligation. Also, until Jan 1, 2013, IRC 108(a)(1)(E) protects homeowners from being taxed on a discharged debt secured by the taxpayer's principal residence.

Re the debt itself, the bankruptcy prevents the lender from attempting to try to collect any unpaid deficiency balance on the loan.

Re the credit cards, the discharge in bankruptcy also discharges the tax liability associated with the forgiveness of debt.

In short, based on your stated facts, Chapter 7 appears to be a very good plan for you.

Hope this helps.

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