Will Bankruptcy Affect My Job or Future Employment

There have been many articles written on the issue of the affect of a bankruptcy filing on the employment or future employment of a debtor. If you are thinking about filing for Bankruptcy protection, but have some concerns about how it will affect your employment this article will provide some insight on the general rules regarding the filing of a bankruptcy and your employment.

Many people have questions about whether their employer will find out about the filing by their employee. The filing of a bankruptcy is a public record. However, it is not usual for an employer to find out about the filing. There are three specific instances when an employer may find out. First, if the employer is a creditor. They will find out as all creditors get notice of the filing. Second, if there is a wage garnishment from your paycheck that is stopped as a result of the bankruptcy filing. Your employer will get notice from the Bankruptcy Court to stop the garnishment and finally, in some jurisdictions, but not Massachusetts, in a Chapter 13 bankruptcy the bankruptcy judge can order that your Chapter 13 payments be withheld from your paycheck. These are the three most common ways that your employer may get notice of the filing of the bankruptcy.

Turning to the issue of employment discrimination as a result of the filing of a Bankruptcy, the Bankruptcy Code provides in Section 525(a) and 525(b) protections from discrimination in employment because of the filing of a bankruptcy. Section 525(a), in part provides that … a governmental unit may not… deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title (Title 11) or a bankrupt or a debtor under the Bankruptcy Act. Section 525(b) provides in part … No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt, solely because of … filing a bankruptcy. In a nutshell the Bankruptcy Code provides that public and private employers cannot discriminate or fire an employee because they have filed for bankruptcy protection. However, there is a difference in the standard between private employers and public employers. The code is clear that public employers may not discriminate, terminate or demote a public employee from their employment. Section 525(b) that applies to private employers does not include the phrase “deny employment to”, which is included in the section that applies to public employers. Several courts have have looked at this issue. When the Courts looked at this issue they have ruled that there was an express reason that Congress left this language out. Many Federal Courts have held that in fact private employers are not prohibited from denying employment to a debtor. In general the more common practice is that private employers will not use the filing of a bankruptcy as the sole basis for termination from employment as they often fear a lawsuit for employment discrimination. Of course, if there are other valid reasons for firing a debtor, such as tardiness, incompetence, violation of workplace rules or sexual harassment then the filing of a bankruptcy will not afford you any protection.

In relation to professional licenses like medical, legal, cosmetology, insurance, pharmacy and securities licenses, the same code provisions that protect you from discrimination in employment, protect you from discrimination relative to professional licenses. However there may be instances where some employers who operate in the financial services industries and investment fields, may be reluctant to offer employment to a debtor as they may perceive the filing of a bankruptcy negatively in light of positions that require the employee to manage and advise in the financial fields and money management fields. Relative to government security clearances, there is some suggestion that the filing of a bankruptcy may be a positive factor for employment. Certain jobs in the FBI, CIA and with government contractors may be difficult to get if you have too much debt. The theory being that with a high debt load you may be more susceptible to bribes.

In most cases employers in both private and public settings will not deny or terminate employment based on the filing of a bankruptcy alone, since so many people file each year that denying employment on that one factor may cause the exclusion of a well qualified candidate otherwise.

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