Type of Bankruptcy Filed

• When you get in trouble with debt, you have the option of filing for either Chapter 7 or Chapter 13 bankruptcy. With a Chapter 7 bankruptcy, you get your debt discharged in exchange for giving up some of your property. With Chapter 13 bankruptcy, you keep your property, but you have to agree to a payment plan that is administered by the bankruptcy court. If you file Chapter 13, you will get to keep your rental property. If you file for Chapter 7, you may get to keep the property.
  
  

Value of the Property

• If you file for Chapter 7, one of the factors that will be considered by the court is the value of the property. If the value of the property is high when compared with the amount owed on the property, the court may seize it. This way, the property can be sold and the equity can be used to repay the creditors. If the value of the house is close to what is owed on it, the court may leave it alone.
  
  

Reaffirmation Agreement

• One way to potentially keep your rental property is to sign a reaffirmation agreement with the mortgage lender. A reaffirmation agreement is an agreement between you and your lender which reinforces the debt. When you sign the document, it takes away your ability to have the debt discharged in the future. The bankruptcy court will make sure that you understand what you are agreeing to before it will be allowed. Once the document is signed, however, you agree to keep making the mortgage payments in the future.
  
  

Cram Down

• Although filing for bankruptcy is a negative that damages your credit, you can take advantage of a process known as a cram down. When you file for Chapter 13, you can sometimes get the court to allow a cram down on your rental property mortgage debt. This occurs when the court forces the mortgage lender to discharge some of the debt so that the mortgage debt is closer to the market value for the property. If you are upside down on your mortgage balance, this can help reduce your debt to a more reasonable level.