Texas Bankruptcy Blog : Texas Bankruptcy Lawyer & Attorney : Fears Nachawati law Firm : Chapter 7, Chapter 13, Consumer Bankrutpcy : Dallas, Fort Worth, Austin, Houston, San Antonio

Many individuals trying to make ends meet take on extra work to pay off debt.  In some cases the added income is enough to make a difference.  In other cases the second job makes no difference, or can even make the financial situation worse.

Working a second job can often create additional unexpected expenses.  Additional travel, food, and child care costs are a few added expenses that will eat away at any increased income.  A second job can create more stress on the family when one spouse is working and the other spouse must increase his or her responsibilities at home.

For some people increasing the family's income can have a big negative consequence on a future bankruptcy.  The bankruptcy "means test" is a calculation that determines whether your income is low enough for you to file Chapter 7 bankruptcy.  The means test is designed to prevent individuals with the ability to pay creditors from filing a Chapter 7 bankruptcy.  Higher income debtors must file Chapter 13 and repay their debts over five years.

When a family that would otherwise pass the bankruptcy means test increases its income, there is a danger that the increase will push the income over the threshold and force the debtors into Chapter 13.  Additionally, the trustee may flag the case for abuse when a debtor voluntarily quits a job and decreases the family income prior to filing bankruptcy.  The debtor is demonstrating that he could afford to repay something, but has chosen to not pay creditors by quitting the second job.

If you are struggling with debt, consult with an experienced bankruptcy attorney before taking on a second job.  It is important to have an understanding of the risks involved and a clear strategy for getting out of debt.  As the saying goes, "Hope for the best, but plan for the worst."  Just make sure that your plan doesn't leave you in a worse financial position.

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While the Bankruptcy Code does not permit a bankruptcy court to modify the terms of a home mortgage, a second mortgage that is entirely unsecured may be stripped away during a Chapter 13 bankruptcy.  For example, if you own a home that is presently worth $200,000 and the first mortgage balance is 200,001, any additional mortgage lien may be stripped away since that debt is not secured by any value in the home.  The debt is reclassified as unsecured, is treated as unsecured during the bankruptcy, and is subject to discharge at the end of the case.  However, if the debtor does not successfully complete the Chapter 13 case, the lien stripping benefit is lost. 

The most important part of the lien stripping process is obtaining an accurate valuation of the property.  Most courts agree that the appropriate time for valuing the property is at the time of the Chapter 13 confirmation hearing, not at the time the bankruptcy case was filed.  This may be several months after you file your Chapter 13 case.  A professional appraisal and other evidence of the value of the property are necessary for successful lien stripping. 

Lien stripping may not require both debtors to file bankruptcy.  In a recently decided case in Michigan, a married couple owned property, but only the wife filed bankruptcy.  She then filed an adversary case against a lien holder to strip away an entirely unsecure second mortgage.  The lien holder attempted to join the husband to the lawsuit, but the bankruptcy court refused.  The court granted the wife's lien stripping motion saying that, since there was no equity,  the bankruptcy estate had no interest in that property.  Under Michigan law (and in many other states) a married couple holds a home jointly as tenants by the entirety.  This is a special legal ownership status where each party owns an undivided whole of the property, as a single legal entity.  The bankruptcy court found that both spouses do not have to be included in the lawsuit even though both spouses receive the benefit of the stripped lien.  This case is currently on appeal. 

In today's economy where many homes have lost value, lien stripping second mortgages in bankruptcy is becoming commonplace.  If you have a second mortgage and need bankruptcy relief, consult with an experienced bankruptcy attorney and discuss your options.  There are many ways to save your family home using the powerful federal bankruptcy laws.