Will Bankruptcy Affect My Job?

For some, bankruptcy is the only hope to eliminate the burden of insurmountable debt. But what if it caused you to lose your job? Wouldn’t that put you in an even worse financial situation? And what about finding a new job? Will bankruptcy affect your chance of getting hired?

Who Will Find Out that I Filed in the First Place?

It is extremely unusual for an employer to find out about a Chapter 7 bankruptcy. The only way this tends to happen is if an employer sues you, gets a judgment, and starts a garnishment action against you. If this happens to you, your payroll department will be notified of the bankruptcy.

Why does this happen? It occurs because as soon as your bankruptcy is filed, the garnishment will stop. In order to stop your next paycheck from being garnished, your employer will be notified of the garnishment termination and the fact that you filed for bankruptcy.

In this scenario, your employer will typically view your bankruptcy as something positive. Since your wages are already being garnished, your employer is aware that you are having financial difficulties. The fact that you have filed for bankruptcy will let your employer know that you are taking proactive steps to remedy the situation.

In chapter 13 bankruptcy, there is a slightly higher likelihood that your employer will be notified of the bankruptcy. If the Chapter 13 trustee takes the unusual step of requiring an income deduction order. This will cause your Chapter 13 payment to be deducted from your paycheck directly. Your payroll department will have to be notified of this in order to establish the paycheck deduction.

If They Find Out, Will I Get Fired?

It is illegal for any employer to terminate you because you filed for bankruptcy. It is also illegal for an employer to discriminate against you in any way as a result of the bankruptcy. For example, an employer cannot cut your pay, change your job title/position, or in general, treat you differently just because you filed for bankruptcy.

Some people worry when a security clearance is necessary for their job, such as government work, that bankruptcy will cause them to be fired, or lose their clearance. We have already discussed that you cannot be fired for filing for bankruptcy. Security clearance, however, is not so black and white.

Unfortunately, there is no law that prevents your employer from changing your security clearance if you file for bankruptcy. However, this is extremely unusual. Typically, when security clearance is an issue, an employer such as the federal government prefers that you take action to remedy any problems you might have with debt. They tend to view employees with debt issues as those at greatest risk for things like blackmail, identity theft and the like. By filing bankruptcy, you are eliminating your debt and therefore, making yourself a lower-risk employee in their perspective. Therefore, filing for bankruptcy usually reduces the chance that you will lose your security clearance.

If your job requires a security clearance, it is best to be up front with your employer. Let them know that you are contemplating bankruptcy, and find out what the possible ramifications are for your security clearance if you do ultimately choose to file.

Does Bankruptcy Protect Me From Changes in My Workplace?

If your employer is changing your circumstances at work, such as lowering your salary, or demoting you, filing for bankruptcy will not protect you. Bankruptcy only makes it illegal to make such changes if your employer is doing so because you filed for bankruptcy. If he or she is making these changes for other reasons, such as tardiness or dishonesty, then bankruptcy cannot protect you.

If I’m Looking for a Job, Will Bankruptcy Keep Me from Getting Hired?

If your employer checks your credit as part of the hiring process, he or she will find out that you filed for bankruptcy. If you are applying for a local, state, or federal job, it is against the law for these employers to consider your bankruptcy as part of its hiring decision.

Unfortunately, no such protection exists if you are applying for a job with a private employer. If a credit check is part of the hiring process, it may be useful to explain your bankruptcy before the credit check. Being up front and honest about your bankruptcy often is the best approach for lessening the affect it will have on your employer’s hiring decision. But in jobs that deal with credit card numbers and money, such as bookkeeping, there is at least the possibility that your bankruptcy will affect your chances of getting hired.