Many people worry that filing bankruptcy will have a negative impact on their housing, job, and other important opportunities. The truth is that the vast majority of bankruptcy filers keep their day-to-day lives intact without issue. The law protects you from being fired for filing bankruptcy, and you can still receive public benefits.
Written by Jonathan Petts.
Updated July 2, 2022
If you’re considering filing Chapter 7 bankruptcy to get a fresh start from credit card debt and medical bills, you may know how it can help your financial situation but be worried about it could affect other areas of your life. For example, you may be concerned that filing Chapter 7 bankruptcy could lead to job loss, eviction from your apartment, or a foreclosure on your house. Or you may even be thinking ahead and wondering if you’ll qualify for federal benefits with a bankruptcy discharge in your credit report.
Fortunately, most people who file bankruptcy don’t see any disruption in their day-to-day lives. But it’s smart to be asking these questions and planning for the future. Here’s what you need to know.
Bankruptcy and Employment
It’s normal to be concerned about how bankruptcy will or won’t affect your current job or job opportunities in the future. Here are some of the most common questions people have.
Can I Lose My Job for Filing Bankruptcy?
Yes, it’s really that simple. The Bankruptcy Code specifically says that neither a government employer nor a private employer can fire you for filing bankruptcy. In fact, the protection is even broader. The law says you can’t be fired for
Being insolvent (having more debt than assets) before filing a bankruptcy case or during the case
Not paying a debt that was discharged in bankruptcy or is dischargeable in a pending bankruptcy case.
Will My Employer Know I Filed Bankruptcy?
It depends. There are two reasons your employer might get official notice of your bankruptcy:
If you owe your employer money, they’ll have to be listed in your bankruptcy filing and they’ll get a notice.
If another creditor is garnishing your wages, your employer will receive an order telling them to stop withholding money for the creditor.
Outside these two situations, it’s unlikely that your employer will learn about your bankruptcy unless you choose to tell them. If you’re required to appear in bankruptcy court during your normal work hours, it could be helpful if you explained your situation to your employer, but it’s up to you to decide. An employer can’t fire you because they found out you filed for bankruptcy.
Is It Harder To Get a Job During or After Bankruptcy?
Different jobs have different eligibility rules. For example, in most cases, a government employer can’t deny you a job or discriminate against you simply because you filed bankruptcy. But if the job you’re applying for requires a security clearance and you’re denied because of your credit history, they can choose not to hire you because you didn’t meet the job requirements.
Private employers have more flexibility. While the Bankruptcy Code offers blanket protection from job loss, it can’t force a private employer to hire you if they think you’re unsuitable. That said, many employers don't care if you have a bankruptcy in your credit history and many of them won’t ask about it at all. Some employers may not even check your credit report. In fact, some state laws limit the use of credit reports in hiring decisions.
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Bankruptcy and Housing
Another major area of concern for potential bankruptcy filers is housing. Here are some FAQs.
Can I Be Evicted Because of Bankruptcy?
Generally, no. If you’ve been paying your rent on time and continue to do so, you can’t be evicted solely for filing bankruptcy.
If you’re behind on your rent, things get a little more complicated. Filing bankruptcy can protect you from being evicted because of the automatic stay protection. This stops all collection actions and requires the landlord to wait for the bankruptcy case to be settled before collecting debt through the bankruptcy court. If missed rent payments are a part of your bankruptcy case, it might be a good idea to consult with a bankruptcy attorney to ensure that you’re working with the most current information on local eviction laws and protections.
Can I Be Denied an Apartment Because of Bankruptcy?
Nothing in federal law prevents a landlord from choosing not to rent to you because you filed bankruptcy. In fact, credit histories play an important role in most rental decisions. Some property managers pull your credit report directly, while others rely on rental screening services.
Standards vary from landlord to landlord. Some will automatically reject anyone with a recent bankruptcy. Others will factor in things like
How long it’s been since you filed bankruptcy
Your credit score
Your previous rental history
Your current income
How long you’ve been at your job
Your payment history post-bankruptcy
Some smaller companies or individuals who own rental property may even make case-by-case decisions after talking with you and looking at other factors.
Can I Get Section 8 Housing Assistance After Bankruptcy?
Yes. Bankruptcy doesn’t impact Section 8 eligibility. However, landlords who accept Section 8 may still have their own criteria, so a Section 8 applicant who has filed for bankruptcy may have more limited options. It’s important to remember that landlords also consider other aspects of your credit history. If you’re deep in debt and have a lot of late payments, this could affect your ability to find housing as much as having a bankruptcy on your credit report would, if not more.
Tips for Finding an Apartment or Rental Home after Bankruptcy
In most situations involving financial risk to the other party, your options get better as your bankruptcy filing gets older. If you rebuild your credit after bankruptcy, most creditors, landlords, and others will pay more attention to your recent history and less to your bankruptcy. So, if you can stay in your current apartment or home for a year or two after bankruptcy, you’ll likely have more choices.
Of course, that’s not always possible. If you must move shortly after bankruptcy follow these tips:
Don’t lie. You may think hiding your bankruptcy is the safest route, but chances are good the landlord will find out. A landlord is much less likely to take a chance on you if you’ve already lied to them.
Point to your recent credit history. Your credit score alone may not tell the whole story. If you’ve been paying your bills on time since the bankruptcy, point that out. If necessary, get a copy of your credit report to show the landlord your recent history.
Offer references. Some landlords ask for references from previous landlords or property managers, but many do not. If you haven’t been asked but you have a good history, offer them anyway.
Offer extra security. Landlords are often hesitant to rent to someone who has filed bankruptcy because they’re worried about getting paid. If you can, offer a larger security deposit, prepayment of the last month’s rent, or even a co-signer.
Can I Buy a House After Bankruptcy?
In short, yes. But becoming a homeowner may take time. Mortgage lenders extend a significant amount of credit, and will want to be sure they’ll be repaid. You may be denied a mortgage at first, but as you build back your good credit, that obstacle won’t last long.
Typically, government-backed loan insurance programs, such as those offered by the VA and the Federal Housing Administration (FHA), will help you qualify for a mortgage loan two years after Chapter 7. In certain circumstances, this may be reduced to just one year. With a conventional lender, it’s usually four years.
Bankruptcy and Government Benefits
Most government benefits aren’t affected by bankruptcy. These typically fall into two categories:
Benefits earned through work or contributions
Benefits offered by the federal, state, or local government to assist people who don’t have sufficient resources to provide for themselves and their families
Earned Benefits and Bankruptcy
Some of the most common examples of earned benefits are Social Security, Social Security Disability, and Medicare. These benefits are all based on your work history. While you’re working, you contribute to these programs through your payroll taxes. If you’re eligible based on age, disability, and work history, you can’t be denied due to credit problems or bankruptcy.
Unemployment benefits are earned benefits that work differently, but the end result is the same. Depending on your state, your employer either pays unemployment insurance premiums or makes contributions to the state unemployment program. Benefits may be denied if you quit your job, are fired for cause, or don’t have enough work history. If you’re otherwise eligible, though, bankruptcy won’t stand in your way.
Public Assistance Benefits
Public assistance benefits are benefits you haven’t earned or paid for. Instead, they’re offered by the government to help keep people out of poverty. Some common examples of these benefits include Medicaid coverage for medical care, WIC vouchers for nutritional assistance, cash benefits, rent assistance, and SNAP benefits to assist with purchasing food for your household.
These benefits are intended to help people who are struggling financially, so it makes sense that they’re not affected by bankruptcy.
Exemption of Benefits in Bankruptcy
People receiving public benefits may also be concerned about whether those benefits are subject to garnishment by creditors or can be claimed by the trustee in bankruptcy. The answer is generally no.
Social Security benefits are protected from most creditors by federal law. Federal bankruptcy exemptions protect Social Security benefits, disability benefits, unemployment benefits, veterans benefits, and local public assistance benefits.
Many states also have bankruptcy exemptions for state benefits and other forms of assistance. Some allow you to choose whether to use the state exemptions or the federal exemptions when filing for bankruptcy, but not all states allow the use of federal exemptions and will require you to use the state’s bankruptcy exemptions. Specific exemptions and laws regarding state-level and local benefits will differ from state to state, so it’s a good idea to look into the specific benefits you are receiving. Whether you end up using state or federal exemptions, most federal benefits will be protected.
Filing for Chapter 7 bankruptcy can impact your ability to get a job or find housing, but not in the ways people often think. You can’t be fired from your job because you filed for bankruptcy and government employers can’t deny you a job solely based on bankruptcy. But private employers may be able to consider bankruptcy when deciding whether to hire you if state and local laws allow it. Also, filing for bankruptcy will not disqualify you from most public benefits.
You may face some housing limitations, especially shortly after bankruptcy. While you can’t be evicted for filing bankruptcy, some landlords may be unwilling to enter a new rental agreement with someone who has recently filed bankruptcy. Understanding which obstacles you may encounter in advance is the best first step toward navigating those issues and building a better life post-bankruptcy.