Like I tell my clients, unless you owe your employer money, they are not listed in the bankruptcy schedules that are filed with the Bankruptcy Court, and are not generally notified, just because you file bankruptcy. Employers can check your credit reports, but in my experience only do that in connection with the hiring process, and they must obtain your written consent to do so.

Now that being said, if you file Chapter 13, at least here in the Houston area, the Southern District of Texas, if you are a “W-2 employee” and have taxes withheld from your check, you must have your Chapter 13 plan payment deducted from your paycheck. So, your payroll office would have to know that you filed bankruptcy; they are the ones that are sent the “wage order” from the bankruptcy court.

Don’t be overly concerned about such payroll deduction or wage orders in the event that you have to file Chapter 13. If you work for a large company, many of your co-workers have all kinds of deductions coming out of their paychecks such as garnishments for child support, student loans, IRS wage levies, chapter 13 plan payments, etc.  It’s likely not as big a deal as you think.

If you are in a small office or you have a very responsible position, it is possible for us to ask the Bankruptcy Court to “waive” the requirement of having a wage order, but it must be unusual circumstances for the judge to consider doing it. A far higher number of Chapter 13 cases are successfully completed, if the debtor has a wage order, with the Chapter 13 plan payments being deducted from their paycheck.

Moreover, employers are not allowed to fire you, or discriminate in employment against you, solely because you filed bankruptcy, or didn’t pay a debt that is dischargeable (cancellable) under the U.S. Bankruptcy Code.

The only possible exception that I know to that one is, if you need a security clearance for your job. If you have such a job, of course you should inform your superiors of any change in your financial situation. I have had them investigate clients that have filed bankruptcy before, and cleared them and allowed them to continue with their classified work, so I know filing bankruptcy doesn’t necessarily mean that you will lose your job, even if you need a security clearance.

What the heck is a “strip off”? Well, let’s say that you have two mortgages on your house. When you bought the house, you used “80-20″ financing that has been so prevalent in recent years.

Let’s also say that the first mortgage is $80,000, and the second is $20,000. When you bought the house, it was $100,000 purchase price, so you financed 100% of the purchase price.

After buying the house, the value of your house fell. And fell a lot, to where it was only worth $75,000. If you file Chapter 13 bankruptcy, it is possible to “strip off” the second mortgage, but having the Bankruptcy Judge declare that there is “absolutely no” equity to support it.

This turns the second mortgage into an “unsecured debt” which is usually paid very little and discharged or cancelled, when you complete your Chapter 13 plan.

So now, instead of owing $100,000 on a $75,000 house, and being tempted to walk away (hurting home prices even more), you owe only $80,000 on it, and will more likely stay. Your other creditors would also likely receive a larger distribution during your Chapter 13 case because of the strip off; that is the real reason it is permitted.

If you live in the Houston metropolitan area or surrounding counties, are having financial troubles, and think you may qualify for a strip off, make an appointment to see me by calling 713-772-8037.