Ask a Lawyer: Can Bankruptcy Affect Your Job Prospects?

Completing your bankruptcy case means experiencing debt relief after struggling with financial problems. But, as you probably already know, the chance to start over does come at a cost. It's normal to wonder, "Will bankruptcy affect my job?"

So, can filing bankruptcy affect your current job or future job prospects? Generally, personal bankruptcy won't affect your current employment. But it could prevent you from future employment opportunities in the private sector.

Will My Employer Find Out About My Bankruptcy?

The law does not require you to inform your employer if you file for Chapter 7 bankruptcy or Chapter 13. It is rare for employers to find out this information.

If someone is garnishing your wages your employer will generally find out. In that case, your employer must notify them to stop the wage garnishment after debt discharge.

If you file for Chapter 13 bankruptcy, a few jurisdictions require that your paycheck deduct your debt reorganization repayments. This would mean informing your employer of the situation.

Finally, if your employer is one of your creditors, it will likely receive notification of your filing.

If none of these situations apply and you choose not to tell your employer about your bankruptcy, chances are they won't find out. You then don't have to worry about potential job loss.

Can Employers Fire Me or Reject My Job Application Because of My Bankruptcy?

Even if your employer finds out about your bankruptcy filing, they can't fire you for that alone. That's because federal law protects debtors from employment discrimination.

If you have ever encountered a hiring process that required you to submit a background check and a credit report, you might wonder if it's allowed.

Under current law, private-sector employees can't fire you because of your debtor status. But they can consider it when making hiring decisions. Private-sector employers can refuse to hire you if you don't permit them to check your credit history.

Most employers will only base their hiring decision on a credit check alone if it directly relates to the work you would be doing. It is only one factor often considered among many.

If the issue arises during the application or interview process, it's best to be open about the experience. You can frame it as something you learned from. Many Americans have bad credit or face serious debt from credit cards, medical bills, or student loans.

Discrimination Laws and Bankruptcy

As mentioned, federal law bans government and private-sector employers from discriminating against those who have filed for bankruptcy protection.

The laws that prohibit discrimination against debtors who have filed for bankruptcy are under bankruptcy law in the U.S. Bankruptcy Code. That's the federal law that oversees bankruptcy proceedings.

Government Agencies

Section 525 of the Bankruptcy Code says that government agencies may not:

• deny employment to
• terminate the employment of
• or otherwise discriminate for employment against potential employees or employees for being a debtor

Federal, state, and local government agencies, as government employers, cannot refuse to hire, fire, or otherwise discriminate against people who file for bankruptcy.

Private-Sector Employers

Section 525 of the Bankruptcy Code uses slightly different language when it addresses private-sector employers. It says that private-sector employers may not:

• terminate the employment of
• or otherwise discriminate in employment against employees for being a debtor.

Notably, the language that prohibits denying debtors employment is not included. Case law has interpreted this omission as intentional. Courts have held that private employers can deny employment to job applicants who have filed for bankruptcy. But they can't fire or otherwise discriminate against them.

What To Do if You Experience Discrimination in the Workplace

While it is against the law for employers to discriminate against bankruptcy filers, it still happens.

If you believe an employer or potential employer discriminated against you based on your bankruptcy filing, ensure your job didn't have another reason for letting you go. It is challenging to prove that your debtor status was the reason for your firing. This is especially true if you have a history of showing up late or not getting your work done.

It can also be difficult to prove that you didn't get or got fired from a government job because of your bankruptcy filing. But, a consultation with an employment law attorney can determine if there is evidence of wrongdoing. If so, you may be able to file a wrongful termination claim against your employer.