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How Will Bankruptcy Affect My Professional License?

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In a Nutshell

There are many benefits to filing bankruptcy, such as the automatic stay, which protects you until your debt is discharged. However, before getting the bankruptcy ball rolling, it’s important to consider how filing could affect other aspects of your life, including your career and professional qualifications. This article will discuss how bankruptcy will, and probably won’t, affect your professional license and what you should know before you file.

Written by Attorney Amelia Niemi.  
Updated July 22, 2020


The decision of whether to file bankruptcy can feel like a big deal. There are many benefits to filing bankruptcy, such as the automatic stay, which stops all collection actions and can give you a fresh start on your financial life after discharging credit card and medical debt.

However, before getting the bankruptcy ball rolling, it’s important to consider how filing could affect other aspects of your life, including your career and professional qualifications. This article will discuss how bankruptcy will, and probably won’t, affect your professional license and what you should know before you file.

You Can’t Be Fired Solely For Filing Bankruptcy

First and foremost, you can’t be fired from your job just because you file bankruptcy. This type of discrimination is specifically prohibited by the United States Bankruptcy Code. Your employer also can’t reduce your salary, demote you, or give you lower responsibilities at work. This is true whether you work for the federal government, state government, or a private company.

In fact, your workplace may never find out about your bankruptcy case. Under federal law, you aren’t required to notify your workplace about your bankruptcy filing. However, if your wages were being garnished, your office will stop withholding a portion of your paycheck. It’s also possible for the bankruptcy trustee in a Chapter 13 case to order your office to give your paychecks directly to the bankruptcy court. Even if your employer does find out about your filing, they can’t discriminate against you.

Additionally, jobs sometimes take a look at your credit report during the application period. Although workplaces won’t be allowed to retaliate against you just for filing bankruptcy, including in making hiring decisions, having a bankruptcy on your credit history could limit your ability to work in payroll, accounting, or with business funds.

If your job requires a security clearance, your job might be relieved to have you file for bankruptcy. Eliminating debts can make you less susceptible to blackmail, since there’s less potential liability for you and your position.

If I File For Bankruptcy, How Will It Affect My Professional License?

Even if your workplace can’t retaliate against you for filing bankruptcy, it’s possible that your bankruptcy case will affect your professional life in other ways.

In general, every state has a licensing board that oversees administration of each professional license according to state law. This board will likely have a set of rules listing your responsibilities if you file bankruptcy, as well as your ability to practice in your field during and after your case. 

Before you file bankruptcy, you should review the rules for your state to see how bankruptcy affects you. For some licenses, you may only be required to report your bankruptcy case to the local authority or state supreme court. 

If you already have your license, you’ll likely need to report your bankruptcy case, but the license probably won’t be revoked just because you file bankruptcy. However, you may be limited in what you can and can’t do while your case is open. For example, lawyers and real estate agents might be prohibited from holding client funds in trust during the time the case is open. Checking your state rules will help you sort out limitations, if any.

On the other hand, if you’re in the process of applying for your license or need to renew your license, your case may or may not affect your license. The government units in charge of issuing and renewing licenses generally look at the overall picture from an applicant when making decisions about issuing licenses.

Similarly, your bankruptcy will show up on a security clearance application, but probably won’t negatively affect your ability to pass or maintain your clearance.

Other Considerations For Licensed Professionals

There are a few other considerations that licensed professionals should take into account while they are considering filing for bankruptcy.

First, many people with a professional license make too much money to qualify for the Chapter 7 Bankruptcy means test. This means that they’ll need to work with Chapter 13 Bankruptcy instead to make monthly payments to their creditors over a 5-year period.

Second, although filing bankruptcy probably won’t affect the licensee’s right to keep their license, defaulting on certain types of debts is a different story. If you default on your student loans, child support, or spousal support (alimony) payments, you might have your license revoked or application denied.

Third, if you own a business associated with your professional license, such as a hair salon, doctor’s office, or law office, the paperwork can get complicated. You should work with a bankruptcy lawyer to figure out the best path forward for you and your business.

Finally, if bankruptcy does turn out to be the right answer for you, the Bankruptcy Code has certain exemptions for “tools of the trade,” such as law books or medical equipment. These aren’t part of the bankruptcy estate and won’t be sold to pay your creditors. You’ll be able to keep these supplies and continue practicing your chosen trade.

Bankruptcy Alternatives

Some professionals will decide that bankruptcy isn’t the right answer for them, due to potential restriction. This doesn’t mean they have no hope of finding debt relief! 

There are debt relief alternatives other than bankruptcy you can explore, such as debt consolidation or debt settlement. You won’t be able to take advantage of the Bankruptcy Code provisions such as the automatic stay, but a different bankruptcy alternative might be better for your situation. Working with a financial advisor or credit counselor can help point you in the right path.

Conclusion

Although you can’t be fired solely for filing bankruptcy, you will probably need to notify your state licensing board or supreme court once you file. If you need help navigating your state’s laws, you should contact a local bankruptcy attorney or law firm for legal advice. If you can’t afford to hire a bankruptcy lawyer, you may be able to use Upsolve’s free web app to prepare for a Chapter 7 bankruptcy filing.



Written By:

Attorney Amelia Niemi

LinkedIn

Amelia Niemi is an attorney licensed in Illinois. She received her J.D. from DePaul University College of Law. At DePaul, she was a staff writer for the DePaul Journal of Art, Technology & Intellectual Property Law. Her legal practice includes multi-million-dollar international b... read more about Attorney Amelia Niemi

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