If you are planning to file for bankruptcy, you might be worried about how it will affect your current employment. Will your boss find out? Can you be fired due to filing bankruptcy? Can a potential employer deny you employment because you filed for bankruptcy?
In some cases, your employer will find out, especially in a Chapter 13 filing. In most cases, however, your boss will have no need to know about your filing. Just be aware that there is a chance that a bankruptcy may interfere if you are applying for a non-government job.
Will I Lose My Job if I File for Bankruptcy?
No employer, private or government, can fire you because you filed for bankruptcy. An employer may not discriminate against you by reducing your salary, demoting you, or taking away responsibility, just because you filed for bankruptcy.
However, if there are other legitimate reasons for taking any of those actions, your bankruptcy won’t be able to protect you. This means that your boss can take negative action against you provided there are other legitimate reasons to explain the negative action, such as tardiness, dishonesty, or incompetence. If you are fired soon after your boss finds out about your bankruptcy, you may have a case against your boss for illegal discrimination.
How Do Employers Find Out About Bankruptcy Filings?
Normally, it’s rare that an employer will find out about your bankruptcy. However, if you are being sued by a creditor and they start garnishing your wages, your boss will definitely get the news. Your bankruptcy will stop the wage garnishment, and your boss will be notified. In this situation, your boss or payroll department already knows you were having financial trouble because of the garnishment. They will be happy for you that the bankruptcy is going to give you some financial relief.
If you file for a Chapter 13 bankruptcy, your boss most likely will learn about your bankruptcy case. If you have a job with regular income, the judge may order that your Chapter 13 payments be deducted automatically from your paycheck and sent to the bankruptcy court. This is called an “income deduction order.” In a sense, your boss will act as a collection agency to make sure you honor your Chapter 13 plan.
Will Bankruptcy Affect My Security Clearance?
Sometimes a job requires a security clearance. If you are in the armed forces, FBI, CIA, any other government agency, or a private company that contracts with the government, you will probably have to have security clearance. Will filing bankruptcy cause you to lose your security clearance? Probably not, but the opposite may be true. Credit counselors for the military and the CIA have said that a person with severe financial problems and a lot of debt could be a prime target for blackmail, but filing for bankruptcy gets rid of your debt, which makes you a lower blackmail risk. Bankruptcy works more in your favor that as a detriment to your life.
What is the Effect of Bankruptcy on Job Applicants?
No local, state, or federal government agency is allowed to take your bankruptcy into consideration when thinking about hiring you. There is not a similar rule for private employers. Some people have found that their bankruptcy comes back to haunt them. This is especially true in jobs that require dealing with money.
Some private employers conduct a credit check on job applicants. This will make them aware of your bankruptcy because it will be on your credit report. Employers need your permission to run a credit check, but they can also refuse to hire you if you don’t give your consent. If you are asked for consent, you might want to talk honestly with your employer about what they will find in your report. Honesty could very well outweigh the negative effects of the bankruptcy filing.
