You cannot be fired simply because you filed for bankruptcy. In fact, employers usually don’t learn about it and it is illegal for an employer to discriminate based on your past filing history.
Written by Jonathan Petts.
Updated July 22, 2020
A common question we hear when people are considering filing for bankruptcy is “will this have any effect on my job? Alternatively, if you’re looking for a job, will filing have any effect on your chances of landing one? This article will answer those questions for you.
Will you Lose Your Job?
If I file for Chapter 7 bankruptcy, will my boss find out about my bankruptcy? The answer is probably not. Normally only your creditors are informed about your case. There is no reason why your employer would be informed and in most cases employers don’t find out.
One exception is if your wages are being garnished by a creditor. In that case, the creditor should stop the garnishment as soon as they are notified of the bankruptcy by your attorney. But you or your lawyer may also want to notify your company’s payroll office about your filing to stop the garnishment immediately. And in that case, your employer would find out.
But in reality, that’s usually not a big deal. Your employer is already aware of your debt problems because they have to process your garnishment each payday. So in reality, filing for bankruptcy may show that you’re taking steps to put your finances in order.
And if your employer does find out about your bankruptcy, they are legally prohibited from firing you because of it. The U.S. Bankruptcy Code’s anti-discrimination section states that no employer can “terminate the employment of, or discriminate with respect to employment against” “an individual who is or has been a debtor” in bankruptcy. That means your employer is also prohibited from reducing your pay or demoting you because of your bankruptcy filing.
It’s important to understand that the Bankruptcy Code only makes termination or discrimination illegal if done “solely” because of your bankruptcy filing. So, bankruptcy won’t prevent you from being fired or demoted if you are bad at your job.
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Will a Potential Employer Find Out About My Bankruptcy?
If you’re applying for jobs, will your potential employer find out that I filed for bankruptcy in the past? Usually yes. Potential employers often check a job applicant’s credit, especially when a job involves cash, accounting, or valuable merchandise.
So what happens if a potential employer sees a bankruptcy on your credit report? It’s something you should be prepared to explain - you had financial troubles and needed to take action to get your finances in order. A bankruptcy obviously isn’t the best sign for an employer. And although it’s illegal for an employer not to hire you because you filed bankruptcy, it is ok for them to consider poor credit and similar factors related to bankruptcy.
That said, a job applicant with a bankruptcy filing may often be more attractive to an employer than the alternative: a job applicant still buried in debt with poor credit. That type of financially distressed applicant is likely viewed as a greater risk for many employers than one who used bankruptcy to obtain a fresh start. Because they are still saddled with debt.
You can’t be fired simply because you filed for bankruptcy. In fact, employers usually don’t learn about it. But, a bankruptcy filing can be discovered by future employers. If you're applying for a new job, it’s best to be honest about this fact and explain the truth - you needed a fresh start to get your personal finances in order so that you can focus on your work and be the most productive employee possible going forward.