Filing for bankruptcy may be a huge step and something that you worry about. Most people wonder if it will affect their future employment. Can your employer fire you if you have filed for bankruptcy and is it legal to pass over a job applicant because they filed bankruptcy?
Your employer might learn about your bankruptcy, but in most cases, it will not affect your employment
. But, there are cases where bankruptcy might affect you getting a job in the private industry in the future.
For the most part, bankruptcy falls into one of two types—liquidation or reorganization.
Chapter 7 bankruptcy - If you want to wipe out qualifying debt, you must agree that the trustee can take and liquidate some of the property to pay back the debt
. You can keep the property protected under state law.
Chapter 13 bankruptcy - Chapter 13 bankruptcy restructures debt for high-income earning individuals (even though it's available to others, as well). You can keep all of your property, but you'll have to pay creditors the value of any nonexempt assets as part of a three- to a five-year payment plan, and other additional discretionary income.
Can I Lose My Job Due to Bankruptcy?
No private or state government can fire you because of filing for bankruptcy. Your employer can’t use this as a reason to terminate your employment. Your employer can’t lower your salary, take away your responsibilities, or dismiss you.
If your employer has other valid reasons for taking any of the above actions (tardiness, incompetence), they have the right to fire you, whether you filed for bankruptcy or not. In case you lost your job shortly after your employer learned about your bankruptcy, make sure you discuss this with a skilled attorney.
How Employers Learn About Bankruptcy
Your employer has low chances to learn about you filing for bankruptcy. It’s not impossible, so if they learn about it, it will happen like this:
Stopping a wage garnishment - If you have a wage garnishment and you file for bankruptcy, your employer will find out. They must get notice of the bankruptcy to stop the garnishment (you or your lawyer will notify the employer). Your employer probably already knows about your financial problems; they will probably help you put these problems behind.
Making Chapter 13 payments – In some jurisdictions, filing for Chapter 13 bankruptcy will lead to employer learning about your case. The bankruptcy judge might order your Chapter 13 payments to be automatically deducted from your wages (and the money will be sent to the bankruptcy court). Your employer will work as a collection agency, to make sure you honor your Chapter 13 plan.
You owe money to your employer – Filing for bankruptcy means that you will have to show a list of your debts. If you’re paying back a payroll overpayment, you’ll have to show it so your employer will notice it.
Bankruptcy, Employment, and Security Clearances
Many jobs require a security clearance. People who are members of the armed forces, work for a government agency, or a private company that contracts with the government, have a security clearance. If you fear that you put your security clearance when filing for bankruptcy, relax, it won’t be put at risk.
Having financial challenges (with a huge debt) you’re at risk of blackmails. When you file for bankruptcy and get rid of your debts, you also lower the risk of blackmails, so it will work in your favor, credit counselors for the military and the CIA say.
How Filing for Bankruptcy Will Affect Your Job Applications
Let’s say you sent an application for a local, state, or federal government agency. None of them should consider your bankruptcy if they decide to hire you. On the other hand, a private employer is an exception, so they may take this fact for you as an issue.
Some people claim that bankruptcy did affect their pursuit of a new job in a private company. Many private employers perform a credit check on their job applicants. The employer won’t find out about your bankruptcy from your credit card report. In most cases, the bankruptcy filing will affect people who seek jobs that deal with money like payroll or accounting.
An employer will need your permission to run a credit check; they can also refuse to hire you if you don’t consent. If you are facing any problem finding job (or losing your old one) after you filed for bankruptcy, call Freedman Boyd Hollander Goldberg Urias & Ward PA
and schedule your consultation.