Does Filing for Bankruptcy Affect a Job?

It is natural to worry about what kind of effect filing for bankruptcy will have on your life. The filer may worry about his employer finding out they filed for bankruptcy and what may happen if they did find out or what kind of impact bankruptcy can have on any potential jobs in the future. To clarify, it is possible that an employer could find out about an employee filing for bankruptcy, the good news is that typically a bankruptcy does not have any impact on their job.

Does Filing for Bankruptcy Mean You Lose Your Job?
Filing for bankruptcy is not grounds for termination from your job. Employers cannot fire an employee simply because they are going through the bankruptcy process. Employers are also not allowed to victimize an employee by demoting them, reducing their pay, or singling them and reducing their responsibilities simply because they filed for bankruptcy. But that doesn’t mean that the employee cannot be fired for other reasons that have a negative impact on the job.  Some of the non-bankruptcy related reasons a person can be fired or laid off include:  constantly being late to work, dishonesty, lack of work and poor job performance.   While this means that if an employer want to fire or lay off an employee, they can.  However, the reason cannot be because the person filed for bankruptcy. If the employee was terminated shortly after the employer was made aware of their bankruptcy, the employee might be able to make a legal claim that they were fired due to discrimination.

Can an Employer Know About My Bankruptcy?
There are a couple of ways an employer can learn about an employee’s bankruptcy case, it also depends on what kind of bankruptcy was filed. If one of the creditors that is trying to collect their debt has gone through the process of garnishing the employee’s income, the employer may be made aware of it when the employee subsequently file bankruptcy to stop the garnishment.  For example, the employer would subsequently be notified a bankruptcy filing has put a halt on the income garnishment, so they will know that the employee has filed for bankruptcy. However, it should be noted that in some cases, employers usually do not ever learn about employees that file a Chapter 7 bankruptcy; and if they do many will offer moral support for the employee.

It is more common for an employer to learn about a Chapter 13 filing. The reason is that if the filer has a steady income, the judge may order that your consolidated debt be paid in installments taken directly from your income, also known as an income deduction order. By doing so, the court makes the employer a sort of collector, making sure that the payments are taken out of the employee’s income.  This is one of the many reasons most people filing bankruptcy prefer to file a Chapter 7 when possible.

How Does Bankruptcy Affect Government Jobs?
If the employee is working for a government agency like the FBI, or they work for a private company that works closely with the government, or they are a part of the military; odds are that they may have some sort of security clearance. The filer might worry about how the bankruptcy will affect their security clearance. It is valid worry; however, it is the general consensus that an employee’s security clearance will not be affected.   One reason is that the very act of filing bankruptcy is the sign of an “honest but unfortunate debtor”  – and filing bankruptcy eliminates debt without the employee being tempted to resorting to other dishonest methods, like taking bribes, kick-backs or embezzlement.

Will Bankruptcy Prevent Me From Being Hired?
Potential government employers may not use the filer’s bankruptcy as a reason to not hire someone. It is a bit different for private companies. If a potential hire is applying for an accounting position or a position that is in direct contact with money, the employers might not want to hire someone that has filed for bankruptcy for that position. It is possible for a potential employer to learn about a potential employee’s bankruptcy by conducting a credit check, which some private companies sometimes do ad it has to be approved by the applicant. It is possible for the employer to not hire someone if they have refused a credit check be run on them. It is worth mentioning that sometimes honesty can be key, if a potential employee informs their future employer about their bankruptcy in advance of the credit check the, company might consider them due to their honesty.  Furthermore, after being involved with hundreds of bankruptcy clients, it has been our experience that eager to work clients usually have little problem finding jobs in all fields after filing bankruptcy.  Several of our clients have gotten jobs with the federal, state and local government, banks, insurance companies, investment companies, etc. with no problem shortly after receiving a bankruptcy discharge.