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Bankruptcy and Discrimination

Federal law forbids the government, government agencies, and private employers from discriminating against people in debt.

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

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

History of Bankruptcy Discrimination

The U.S. Constitution grants the federal government the power 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 fifty states. It also means that bankruptcy law is a national matter and can come up before the U.S. Supreme Court and U.S. Court of Appeals.

Federal laws against bankruptcy discrimination came about in 1971. In that year, the U.S. Supreme Court decided a case called Perez v. Campbell.

Perez said a state can't deny a person a driver's license because of an unpaid court judgment that had been discharged in bankruptcy. They won the case.

The ruling in Perez v. Campbell prompted the U.S. Congress to make federal law 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
  • Listing certain conditions related to bankruptcy on a grant application

Courts have interpreted this ban broadly.

Under the same provision of the United States Code, the government may not discriminate against anyone associated with a debtor in bankruptcy. This protection for associates of a bankruptcy debtor can potentially extend to business partners and family members as well.

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:

  • Firing an employee because of their bankruptcy
  • Not hiring an employee because of their bankruptcy
  • Discriminating against a debtor's family or friends

This means that you and anyone you know cannot face employment discrimination based on your bankruptcy.

Have You Faced Discrimination Because You Filed for Bankruptcy?

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

 

Next Steps

Contact a qualified bankruptcy attorney to find out your options for navigating the best path forward.

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