What chapter of bankruptcy should I file to avoid a deficiency judgment?

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.

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.

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.

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.

You really should sit down with a local bankruptcy attorney. You may not even be a good candidate for bankruptcy.

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.

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.