My question involves bankruptcy in the state of: California

I have finally had to stop paying on my credit cards as they reached an ungodly amount as I've not worked much in 4 years. My means test says Chapter 7 works, but I also have a home in which I have too much equity to avoid a trustee sale, BUT, if I were to sell it myself right now, the capital gains tax owed would be more than the cash I'd receive from the sale and also more than my 75K homestead exclusion (I've owned it 27 years and have taken out equity from several re-financings.) So it seems like it might be a mistake to sell it myself (its a VERY strong market here so it would go quickly) rather than wait for chapter 7 - I would have to pay the IRS all my proceeds and have nothing to live on unless I wanted to short the IRS and have them chasing me.

So the other alternative is to let it go through BK trustee sale but delay filing for maybe 3 months and stop paying the mortgage during that time so I can conserve my cash to restart life. I've been reading that the capital gains tax would not revert back to me in that case because BEFORE the taxable event (sale) the house would be transferred to the BK trust - a new, separate entity that becomes responsible for the tax consequences of the sale. So it seems like it would be easier to do it that way. It would allow me to collect rent for a few extra months from my roommates before they got wind and decided to move. If I put a for sale sign up right away, they'd be looking for a new place right away, I assume.

I know I'm going to lose the house, the big thing is to at least have some cash put away to restart. Any obvious thing I am missing in looking at it this way? I'm just not certain how the taxes and cash from my exclusions are handled. Can I assume that my 75K homestead exclusion would be retained by the BK trust and applied toward the capital gains taxes? -I assume that even though the gains tax does not survive the BK entity, those taxes would still be computed based on my actual basis, not some new stepped up basis within the trust entity. I guess I'm unsure how capital gains are handled in chapter 7. Any info would be appreciated.

Craig