Employment Discrimination Based on Filing for Bankruptcy
Bankruptcy should not have a stigma attached to it, but sometimes it still does. As a result, a debtor might worry that they will lose their job if their employer finds out about their bankruptcy. They also might fear that they will miss out on some job opportunities if they have a bankruptcy on their record.
The general rule is that you cannot be fired because you filed for bankruptcy if this is the only reason for your termination. Nor can your employer subject you to adverse treatment, such as a demotion or unfavorable reassignment, based solely on your bankruptcy filing. (On the other hand, your employer can fire or discipline you for unrelated actions after you file for bankruptcy.) You may want to consult an employment attorney to explore whether you may have a discrimination claim if you were fired shortly after filing for bankruptcy, and you suspect that this was the real reason for your firing.
Does Your Employer Need to Know?
Your employer does not have a legal right to know that you have filed for bankruptcy, but there are some situations in which it may find out. If you owe money to your employer, such as an overpayment, you will need to list this amount on your schedule of debts in your bankruptcy petition. The employer will be notified of the bankruptcy case, similar to any other creditor. Also, if you already are subject to a wage garnishment, your attorney or you will need to tell the employer about your bankruptcy so that the garnishment stops. This may seem embarrassing, but your employer may see it as a positive that you are taking steps to address your financial problems.
The Positive Side
It may be necessary or advantageous to tell an employer about bankruptcy. For example, having an employer deduct Chapter 13 payments from an employee’s wages may help them stay on top of their repayment plan.
If you file under Chapter 13 instead of Chapter 7, depending on the state, your employer may be ordered to make deductions from your wages for your repayment plan. This can help a debtor keep up with their payments under the plan by essentially turning the employer into a collector. Your employer should not find this process burdensome, and again they may be glad to know that you are repaying your debts.
If you work for the government or in another job that requires a security clearance, you may benefit from letting your employer know that you have filed for bankruptcy. Your employer might have been anxious that your debts make you a target for blackmail, so they may be relieved that you are resolving this issue.
Bankruptcy and Applying for Jobs
If you are applying for a job with a private employer, you do not have a right to conceal a past bankruptcy from the employer. They may find out about the bankruptcy from your credit report, and businesses hiring for positions that involve handling money may think twice about hiring someone with a bankruptcy on their record. Unfortunately, you do not have much recourse in this situation. You can refuse to let a prospective employer conduct a credit check, but this also will be a red flag that may result in the loss of this opportunity. The best approach is probably to be honest about any concerns that the employer will find and explain the situation from your perspective. Your openness may convince the employer that you would be a trustworthy employee despite your past financial troubles.
Did You Know?
Federal, state, and local government employers cannot discriminate against applicants based on bankruptcy filings, but there is no law prohibiting such behavior by private employers.
If you are applying for a government job at the federal, state, or local level, by contrast, you have protections against discrimination based on a previous bankruptcy. The employer cannot take the bankruptcy into account when deciding whether to hire you.