How will chapter 13 bankruptcy affect my rental property holdings?

Chapter 13 bankruptcy does not require you to turn over assets, which means that if you own a rental property free and clear, it will not be affected in any way by the chapter 13 bankruptcy. The income generated from it, if any, will be considered income and will be used along with your other income to determine what your repayment amounts will be under the chapter 13 repayment plan, but the rental property will otherwise be unaffected by the bankruptcy.

If you owe money on the rental property, then the outstanding mortgage balance and the property may be affected by the bankruptcy. The mortgage is secured debt, so the mortgage will either need to be paid or the rental property will need to be surrendered to the mortgage lender. However, there is a special process called a chapter 13 cramdown procedure that may be used in certain instances to reduce the balance of a mortgage (especially a second mortgage). 

If the market value of the rental property is below the amount owed on it, a cramdown may be used to adjust the mortgage balance down to the actual market value of the property. Generally, the difference between what was owed and the new adjusted loan balance will then be considered "unsecured debt" and will become a part of the other unsecured debts that are included in the chapter 13 repayment plan agreement.

For assistance in determining if you can use a chapter 13 cramdown, or for other advice and guidance on filing chapter 13 bankruptcy, it is imperative you consult with a lawyer.