Legal Question in Bankruptcy in North Carolina

From a bankruptcy standpoint, you must evaluate your equity positions, particularly your equity in your home. You appear to be eligible for a Chapter 7 bankruptcy which would discharge all debt, with exception for taxes, student loans, domestic support obligations.. There are other exceptions. The loan secured by the rental property is dischargable. In bankruptcy, one could just file and allow the trustee and bank decide who and when and for how much it is sold. The matter is quickly out of your hands. Given the history of not being able to sell it, the trustee may merely allow the bank to foreclose. either way, no deficiency can be claimed against you. Of course your equity in other assets must be exempt or the trustee could take them. You are allowed $35,000.00 equity in real estate you use for your home, a wild card exemption in any property of $5,000.00 plus any unused real estate exemption. There are other exemptions for an automobile, household goods and others. A qualified retirement account is not an asset and is retained without regard to exemptions. As to your question, a deed in lieu requires the lender to take title from you voluntarily. It could be done with full loan balance consideration and cancel the debt (true deed in lieu) or for less than the loan balance. In the latter case, the bank then would either negotiate a deal for a lump sum payoff of the deficiency or arrange for an unsecured note and take payments. If the bank decided, and you allowed, the foreclosure, the bank has 1 year to bring suit to take judgment on the deficiency or it is lost to them. All of these unsecured obligations to the bank would be discharged in bankruptcy. Thus, bankruptcy would provide relief at the outset or later in the process if necessary. It could be that a satisfactory result could be achieved without filing the bankruptcy. There is more detail and other options than this answer can explore. This answer is intended to constitute a general discussion with reference to the limited facts shown in the question and should not be considered as advice. If you have decided that you do not want to continue on the present course, then you should consult a lawyer familiar with bankruptcy practice to plan your actions with knowledge of all the details of your situation and of your contingencies along the way.