Filing Bankruptcy as a Licensed Professional: What To Expect

How Will Bankruptcy Impact My Professional License?

Filing for personal bankruptcy can provide relief from overwhelming financial obligations. But it’s important to understand how it may affect your career and professional standing. Filing for bankruptcy usually won’t cause you to lose your professional license. 

Most licensing boards don’t automatically issue a revocation just because someone files for bankruptcy. However, some professionals may have extra steps to follow.

Will I Lose My License if I File for Bankruptcy?

In most cases, bankruptcy alone doesn’t take away your right to work in your profession. If you’re already licensed, you’ll likely be able to keep your license as long as you meet all other requirements. 

That said, some professionals may need to report their bankruptcy to their state’s licensing board. Others may need to follow certain financial rules. This often applies to those in professions with strict rules about financial responsibility. For example:

• Lawyers may have restrictions on handling client funds in trust accounts during a bankruptcy case

• Real estate agents might need to report their bankruptcy to their state board

• Jobs that require security clearance may ask about bankruptcy, but having less debt could actually help in some cases

🚨 Disclaimer: Each state has different rules about professional licenses and bankruptcy. Before you file, check with your licensing board to see if you need to report your case or follow any special rules.

Can My Employer Fire Me for Filing Bankruptcy?

Bankruptcy law protects you from being fired just because you filed. Both private employers and government agencies must follow these laws.

Job Protections Under Bankruptcy Law

Bankruptcy law protects you from being fired, demoted, or having your pay cut just because you filed. This applies to both private employers and government agencies, so your employer can’t punish you simply for seeking debt relief.

Even if your current employer finds out about your bankruptcy, they can’t take negative action against you just for filing.

How Bankruptcy May Indirectly Affect Employment

While your current employer can’t fire you for filing, bankruptcy might still have indirect effects on your job prospects.

Some employers conduct a credit check or background check as part of the hiring process. This may be the case for jobs in finance, law enforcement, or government roles. 

Bankruptcy filings are public records, so they will show up on your credit report. If an employer checks your credit, they might have concerns. This is especially true for jobs that involve handling money or managing financial records. It’s also true for jobs requiring a security clearance. But many employers focus more on overall financial habits.

If you're not sure how bankruptcy could impact your job or career, talking to a bankruptcy attorney can help you understand your options. Upsolve can connect you to a local attorney for a free consultation.

Bankruptcy Considerations for Licensed Professionals

If your job requires financial responsibility, bankruptcy may come with extra things to consider. This is especially true in industries like:

• Finance and accounting: Employers may check credit reports for signs of financial trouble

• Law and real estate: Professionals who hold trust accounts for clients may have extra reporting requirements

• Healthcare: Some medical professionals own private practices, which means their business finances could be affected

If your job involves managing money for clients, bankruptcy could add complications. Lawyers and real estate agents, for example, may face restrictions on handling trust accounts while their case is open. 

If you’re a business owner, you may need to take extra steps to protect your business assets and comply with licensing rules.

Bankruptcy probably won’t make you lose your license, but it’s important to know the challenges and responsibilities that may apply. We address a few key issues in the following sections.

Income and Chapter 7 vs. Chapter 13 Bankruptcy

Many professionals earn too much to qualify for Chapter 7 bankruptcy. If your financial situation makes you ineligible for Chapter 7, you may need to file Chapter 13 bankruptcy instead. This means committing to a repayment plan that lasts 3–5 years, during which you’ll make monthly payments to creditors. 

It also usually means hiring a law office to help with your case. Unfortunately, most people who file Chapter 13 without an attorney don’t succeed.

Defaulting on Some Debts Could Lead to License Issues

While bankruptcy itself doesn’t usually result in license revocation, defaulting on certain debts can. If you fall behind on certain debts, you could risk losing or not being able to renew your license.

 Some debts to watch out for include:

• Student loans (for professions requiring certification or licensing)

• Child support payments

• Spousal support (alimony)

Some states have laws that allow license suspension for unpaid support obligations.

Bankruptcy Alternatives for Licensed Professionals

Bankruptcy can wipe out credit card and medical debt and give you a fresh start, but it isn’t the right choice for everyone. Fortunately, that doesn’t mean you’re out of options. There are other ways to manage debt and regain financial stability.

Two common alternatives are debt consolidation and debt settlement:

• Debt consolidation allows you to combine multiple debts into one loan with a lower interest rate. This can make your payments more manageable and save you money in the long run.

• Debt settlement involves negotiating with creditors to reduce the total amount you owe. This may impact your credit score, but it can also save you money.

These options don’t stop collections, wage garnishment, or lawsuits like bankruptcy can. That’s thanks to the automatic stay, But they may be better suited for professionals who want to avoid a bankruptcy filing.

If you're unsure which path is best, consider speaking with a financial advisor or credit counselor. They can help you explore debt relief options that fit your financial and professional needs. Upsolve can connect you with an NFCC-accredited nonprofit credit counseling agency for a free consultation.

Let’s Summarize…

Filing for bankruptcy won’t automatically cost you your job or professional license. But there may be reporting requirements depending on your state and profession. Some professionals, like lawyers and real estate agents, may face restrictions on handling client funds during their case. If you’re applying for a new license or renewal, your bankruptcy might be considered, but it usually isn’t a dealbreaker. 

If you’re unsure how bankruptcy laws apply to your situation, consider scheduling a free consultation with a bankruptcy attorney to get legal advice and better understand your options.