Can I Lose My Job if I File for Bankruptcy?

Your employer cannot fire you because you filed for bankruptcy, but a private employer may refuse to hire you.

Your employer cannot legally fire you just because you filed for bankruptcy. The law prohibits both government and private employers from terminating your job due to your bankruptcy filing. But if you are applying for a new job, the protection is not so broad.

Prohibition Against Job Termination

Under the law, no employer, government or private, may terminate your employment solely because:

  • you have filed for bankruptcy,
  • you were insolvent before you received a discharge in bankruptcy, or
  • you have not paid a debt which was discharged in bankruptcy or will be discharged in a pending bankruptcy.

Your non-filing spouse’s job is also protected -- the law specifically provides that the prohibition extends to people who are associated with someone who has filed for bankruptcy.

Employer Motivation Is Key to Protection

The key to the protection is that the prohibited action must be "solely" based on the fact that you have filed for bankruptcy. The bankruptcy laws will not prevent you from being fired for other reasons nor will they prevent you from being laid off or terminated if you company is downsizing or reducing its workforce in an otherwise legally acceptable manner. Of course, if not everyone is being laid off or terminated and you are chosen just because you have filed for bankruptcy, it is prohibited.

Protection Extends to Discriminatory Actions

The law also prohibits discrimination with respect to your employment, or the employment of anyone associated with you, because of your bankruptcy. While this does not necessarily cover hiring decisions, it does mean that if you are already employed, you can’t be treated differently just because you filed for bankruptcy. For example:

  • If you were in line for a promotion or a raise and you are denied just because you filed for bankruptcy, it is a violation of the law.
  • It is also a violation if you are demoted or your salary is lowered because of the bankruptcy filing.

It doesn’t matter if you work for a government agency or a private company. The law applies to both.

Protection Is Limited When You are Seeking New Employment

The bankruptcy laws also provide some protection for bankruptcy filers when they are being considered for new employment but it does not apply to all employers.

Government Employers May Not Refuse to Hire You

Like the prohibitions against termination and discrimination, a government employer cannot refuse to hire you, or any person associated with you, solely because you have filed for bankruptcy, you had been insolvent before receiving a discharge in bankruptcy, or you have not paid a debt that is dischargeable in your bankruptcy or has been discharged in bankruptcy.

Private Employers May Refuse to Hire You

In contrast, there is no similar restriction for private employers. Private employers do have the right to deny you employment based on your bankruptcy filing.

Many private employers require credit or background checks prior to hiring. Your bankruptcy will likely show up in these reports and a private employer can refuse to hire you because you have filed for bankruptcy, even if that is the only reason they are refusing to hire you.

And you may not be protected during an employment evaluation period. At least one appellate court has permitted a private employer to deny employment after a two-day paid evaluation period, solely because it found that the employee had previously filed for bankruptcy. In that case, the bankruptcy was discovered as a result of a background check authorized by the prospective employee.

No Bankruptcy Discrimination in Government Issued Licenses

Under the law, no governmental unit may deny, revoke, suspend, or refuse to renew a license of a person who has filed for bankruptcy because:

  • the person filed for bankruptcy
  • was insolvent before the bankruptcy discharge, or
  • has not paid a debt that has been discharged or will be discharged in a pending bankruptcy.

Similar to the protection for employment actions, the licensing protection extends to people who are associated with someone who has filed for bankruptcy.

This is important if you have a job which requires you to maintain a professional license. However, there are a few very limited exceptions relating to the agriculture industry.

Will My Employer Find Out I Have Filed for Bankruptcy?

As a practical matter, in most instances, your current employer will not find out that you have filed for bankruptcy unless you owe your employer money and have to list your employer as a creditor, or your Chapter 13 plan payments are required to be deducted from your paycheck and paid directly to the Chapter 13 trustee by your employer. Not all districts require income deduction orders and, even those that do, are likely to waive the requirement if you request a waiver based on your honest concern that involving your employer would result in adverse employment actions.

Enforcement and Damages

If an employer violates these laws, and refuses to reconsider when you bring the law to its attention, you can sue in court. The remedies vary if you win the lawsuit, but you might get your job reinstated, back pay and, possibly, attorney fees.

To learn about other things to consider before filing for bankruptcy, see our Should I File for Bankruptcy? topic area.

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