If you need to file for bankruptcy, you could be worried about how filing can affect your employment or future employment.
Even though it’s possible your employer can find out about your bankruptcy case, in most cases, bankruptcy doesn’t affect your current employment. However, it could prevent you from getting a job in the future, especially in the private industry.
Can You Lose Your Job Because of Bankruptcy?
Your employer, whether private or government, isn’t able to fire you just because you filed for bankruptcy. An employer also can’t use your filing as a reason to change the conditions or terms of your employment.
Even though you file for bankruptcy, your employer can’t demote you, take away job responsibilities, or reduce your salary. However, if your employer has a valid reason for actions against you such as incompetence, tardiness, or dishonesty, then the fact that you filed bankruptcy isn’t going to protect you.
However, if there are no other justifications that exist and you were fired soon after your employer learns about your bankruptcy filing then you could have a case against your employer.
How Can an Employer Find Out About You Filing Bankruptcy?
An employer will rarely find out about a Chapter 7 bankruptcy, but it can still happen. If you have a wage garnishment when you file for bankruptcy then your employer can find out this way. Your employer receives notice of bankruptcy to stop the garnishment.
Your attorney or you will notify your employer. However, since your employer already knew you were under financial stress because of the wage garnishment, they may welcome bankruptcy as a way for you to take positive steps to put your financial problems behind you.
In some cases, if you file for Chapter 13 bankruptcy then your employer can learn about your bankruptcy case. The bankruptcy judge can order Chapter 13 payments to be deducted from your wages automatically and sent to the bankruptcy court.
This means your employer has to act as a sort of collection agency in order to make sure you are going to meet the terms of your Chapter 13 plan.
When you fill out your paperwork for bankruptcy, you need to list all of your debts. If you are paying back an overpayment then you will have to include this in your list of debts and in this case, your employer gets notice of your bankruptcy case.
What Happens with Bankruptcy and Jobs that Require Security Clearances?
There are many jobs that require you to have a security clearance. For example, if you are an employee of a government agency, the CIA, FBI, or a member of the armed forces, you will need some sort of security clearance.
This can even apply if you work for a private company that contracts with the government. You aren’t likely to lose your security clearance if you file for bankruptcy, and filing for bankruptcy may actually help you more than it could hurt you.
According to credit counselors, a person that has financial problems, especially if there is a lot of debt, has a high risk of being blackmailed. When you get rid of your debts by filing for bankruptcy then you lower your risk. This means bankruptcy will be more in your favor instead of your detriment.
What Effect Does Bankruptcy Have on Job Applicants?
No state, federal, or local government is able to consider bankruptcy when deciding whether or not you should be hired. However, private employers aren’t constrained by any rules and some people do find that filing for bankruptcy in the past affects their job prospects.
Private employers usually do a credit check on any job applicants. Your potential employer will find out about a bankruptcy filing from the credit report.
A bankruptcy filing is likely to cause more issues for jobs that require you to deal with money, such as payroll, accounting, or bookkeeping. An employer does need your permission in order to run a credit check but can also refuse to hire you if you don’t consent to the check.
If you are asked to give authorization to a credit check then you may want to consider speaking openly about what an employer will find when they run the report.
Being upfront and honest may outweigh any negative effects of the bankruptcy filing and not prevent you from losing the job. Most employers aren’t likely going to base hiring decisions just on your credit report alone unless it’s directly related to the job.
It’s usually one factor considered, including how well you handle the interview, your skills, and your work history.
Bankruptcy and Discrimination Laws
Federal law does prohibit both private sector and government employers from discriminating against employees who have filed for bankruptcy protection.
However, these laws only affect current employers and don’t have any bearing on whether or not a company will hire you based on your credit report.
The law for government agencies says that a government employer can’t discriminate against potential employees on the basis of being a debtor. However, for private employees that language that prohibits employment isn’t included.
Courts have held that private employers are allowed to deny employment to job seekers who have filed for bankruptcy, but they aren’t able to discriminate against or fire these employees.
What to Do if You Are Discriminated Against?
Unfortunately, there is not much you can do if you are denied a job in the private industry after you file for bankruptcy, but if you are fired from your current job in either private or government agencies then you may have a case.
You need to make sure that your employer didn’t have another acceptable reason for firing you. It can be hard to prove that your bankruptcy filing was the reason you were fired, especially if you have poor job performance or a history of showing up late to work.
It can be even harder to prove you were turned down for a job because of your bankruptcy filing, but an experienced lawyer can help you know if you have a claim and provide help with filing a claim.
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