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Will My Employer Find Out About My Bankruptcy?

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In a Nutshell

Your employer will most likely not find out about your bankruptcy case when you file.

Written by Attorney Eva Bacevice.  
Updated August 11, 2020


Probably not. Even though filing for bankruptcy is public record, your employer would need to know where to look to find it. There are a number of scenarios where your employer would receive notice of your filing, which we will discuss below, but the good news is that even if your employer does know that you filed for bankruptcy, it is illegal for them to fire you because of it.

Employers are NOT officially notified when their employee files for bankruptcy

When you file a bankruptcy case there is a public record that is created. What that means is that any person could search court records and see that you have filed for bankruptcy. While a bankruptcy filing is public record, the reality is that most people don't go searching for court records. It is very unlikely that your employer would stumble across your bankruptcy case by accident. There are, however, times when an employer will receive notice of your case, which means that they will be officially notified that you have a pending case with the bankruptcy court.

Circumstances where an employer WILL receive official notice:

There are three main scenarios when your employer will receive notice that you have filed a bankruptcy case. This will happen if the bankruptcy filing is stopping a wage garnishment; if you owe money to your employer and have to list them as a creditor; or if you are filing a Chapter 13 case which requires a payroll deduction order for plan payments.

Stopping a wage garnishment

You might decide to file a bankruptcy specifically to stop a wage garnishment. A wage garnishment occurs after a creditor (someone you owe) has filed a lawsuit against you to collect the money you owe. Most often creditors will receive a judgment against you because you did not respond to the lawsuit. If you do not respond within a certain time period, the judge will enter a default judgment against you. Once a judgment is entered, your creditor can serve it on your payroll department so that they can get money from your paycheck before you even see it. This can result in you not having enough money in your paycheck to keep up with expenses.

When you file a bankruptcy case an automatic stay goes into effect immediately, which freezes certain legal proceedings. Your wage garnishment will stop. Your payroll department has to receive notice of your case in order to do so. It can vary by employer whether others in the company (such as your supervisor) are informed.

If you owe your employer money and have to list them as a creditor

When you file a bankruptcy case you are signing, under oath, that you have listed all of your creditors to the best of your knowledge. This will include your employer if you owe money to them. They will receive notice of your case at the same time as all other creditors.

Chapter 13 payroll deduction order

There are two main types of individual bankruptcy cases: Chapter 7 and Chapter 13. A Chapter 7 case is what you think of as a traditional bankruptcy, which is a fresh start where you walk away from your debts without having to pay your creditors a dime. A Chapter 13 bankruptcy involves a monthly repayment plan lasting 3-5 years.

Your Chapter 13 plan has to be approved by the court and funded, if possible, by a payroll deduction order. The payroll deduction order will act similarly to a garnishment.

If an employer is notified can they take action against you?

No, it is expressly illegal to do so, under Title 11 of the United States Bankruptcy Code, Section 525. Your employer (whether government or private) is not allowed to fire you solely because you filed a bankruptcy case. They are also not allowed to retaliate against you. There is an explicit law which protects you.

Could it impact future employment opportunities?

It is possible that filing a bankruptcy may impact your ability to get hired in the future. If a prospective employer requires a credit report as part of your application they will see that you have filed for bankruptcy. High security clearance jobs, for example, may take into account your bankruptcy filing when making a hiring decision.

Conclusion

It is unlikely that your employer will find out about a bankruptcy case you file.



Written By:

Attorney Eva Bacevice

LinkedIn

Eva G. Bacevice graduated from the University of Michigan Law School in 2001. She practiced law for close to a decade in the area of consumer bankruptcy. She now works in higher education as an Academic Advisor for undergraduate students at the Stephen M. Ross School of Business,... read more about Attorney Eva Bacevice

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