Bankruptcy and Discrimination

Federal law forbids the government, government agencies, and private employers from discriminatory treatment against people in debt. Although an employer may discover your bankruptcy from a credit check or credit report, they cannot discriminate against you because of it.

It is illegal for private employers and the government to discriminate against anyone who:

  • Was or is a debtor
  • Was or is unable to pay debts before or during a bankruptcy case
  • Has not paid a debt discharged through bankruptcy

Keep reading to learn more about bankruptcy and discrimination.

History of Bankruptcy Discrimination

The U.S. Constitution allows the federal government to set bankruptcy laws and administer bankruptcy proceedings. Accordingly, bankruptcy proceedings occur in federal bankruptcy courts, and bankruptcy law tends to be uniform across all 50 states. This means that bankruptcy law is a national matter. It can come up before the U.S. Supreme Court and U.S. Courts of Appeals.

Federal laws against bankruptcy discrimination came about in 1971. That year, the U.S. Supreme Court decided a case called Perez v. Campbell. Perez argued that a state can't deny a person a driver's license because of an unpaid court judgment that had been discharged in bankruptcy. Perez won the case.

The ruling in Perez v. Campbell prompted Congress to pass 11 U.S.C. Section 525. This law is a more general ban against government and private employer discrimination based on bankruptcy.

Government Discrimination During Bankruptcy

There are federal bankruptcy nondiscrimination laws that protect you. These laws prohibit the following forms of government discrimination against bankruptcy debtors:

  • Firing a debtor due to the debtor's bankruptcy
  • Discriminating when hiring
  • Denying, suspending, canceling, revoking, or declining any licenses, franchises, or other privileges because of the bankruptcy
  • Denying a government grant because of the bankruptcy

Under the same provision of the United States Code, neither the government nor private employers may discriminate against anyone associated with a debtor in bankruptcy with respect to employment. This protection for associates of a bankruptcy debtor can potentially extend to business partners and family members.

Can an Employer Fire Someone in Bankruptcy?

No, a private employer may not discriminate against bankruptcy debtors. The same federal statute that bans governmental discrimination also prohibits private employers from similar forms of bankruptcy discrimination.

These include bans against:

This means you can't face employment discrimination based on your bankruptcy.

Have You Faced Discrimination Because You Filed for Bankruptcy? Speak With a Bankruptcy Attorney

Did you submit a bankruptcy petition for a Chapter 13 bankruptcy, Chapter 7 bankruptcy, or any other type of bankruptcy?

If you think the government or an employer fired you, did not hire you, or otherwise discriminated against you because of your bankruptcy filing, you should consult a local attorney working with employment discrimination cases.

A lawyer familiar with the Bankruptcy Code can give you quality legal advice. Let an attorney explain bankruptcy protections to you and help you work towards a fresh start.

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