Will Filing Bankruptcy Affect Your Employment?

One of the most common concerns my clients have is whether or not filing a bankruptcy case will affect their job. The short answer is this; no, filing a case should not have any impact.

The Bankruptcy Code at 11 U.S.C. §525 specifically prohibits employers from discriminating against any person who has filed for bankruptcy relief. Your employer would be breaking a federal law if they fire you or discriminate against you as a result of your bankruptcy.

Protection Against Discriminatory Treatment

(a) Except as provided in the Perishable Agricultural Commodities Act, 1930, the Packers and Stockyards Act, 1921, and section 1 of the Act entitled “An Act making appropriations for the Department of Agriculture for the fiscal year ending June 30, 1944, and for other purposes,” approved July 12, 1943, a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, 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 or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.

(b) 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 under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt—

(1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;

(2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or

(3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.

Will My Employer Find out About My Bankruptcy Case?

It is very unlikely that your employer would ever know that you’ve filed bankruptcy if you file a Chapter 7 case. Chapter 7 is the most common kind of case that is filed nationwide.

In Chapter 7, the court will require you to disclose where you are working and what your income is, but as long as you provide that information then there would be no reason for the court to ever contact your employer.

In Chapter 13 cases, it is not unusual for the employer’s payroll department to find out that a person has filed bankruptcy. Chapter 13 cases allow you to consolidate your debts into a payment plan that is managed by the court.

In the majority of Chapter 13 cases, the person who files a Chapter 13 case will make payments on their case through a payroll deduction. The Bankruptcy Court or Trustee can send the necessary information to your payroll department and they will automatically deduct your Chapter 13 plan payments the same way they deduct your income taxes or health insurance.

A Payroll Deduction issued by a Chapter 13 Trustee is NOT a garnishment. It is a completely different legal document that orders the employer to deduct a set amount from your pay and remit it at least monthly to your Trustee.

However, keep in mind that Bankruptcy filings are public record and in today’s electronic society can be more easily discovered, potentially through one of today’s popular search engines, like Google, Bing, Firefox, Yahoo, etc. Even now, some newspapers still publish a list of bankruptcy filers although this practice is becoming less common.

Bankruptcy is More Common Than One Might Think

Bankruptcy is a common enough occurrence that, for most businesses, dealing with bankruptcy is just a part of regular day-to-day accounting. Any employer that withholds payroll taxes from your paycheck will have the capability of withholding a Chapter 13 payment. Furthermore, Chapter 13 cases that have a payroll deduction in place are statistically more likely to be successfully completed!

On another note, if you file a bankruptcy and have ANY kind of security clearance, we absolutely advise full disclosure to your Facilities Security Officer (FSO) at the time you file your Bankruptcy case. In many situations where a security clearance is involved and required for employment, we strongly recommend the filing of a Chapter 13 Debt Consolidation if at all possible.

Also, if you have a security clearance, you can also seek counsel from our law partner, Ron Sykstus.

You Cannot Be Fired Solely for Filing Bankruptcy

The Bankruptcy Code states that no private or government employer can penalize you for filing any form of bankruptcy. Of course, employment laws vary from state to state.

However, your employer cannot terminate you solely for filing bankruptcy as this would be in violation of federal law, nor can your current employer penalize you in any way, to include salary reduction or demotion.

Contact a Lawyer for Answers to Your Questions

If you think bankruptcy may be right for you, don’t let worries about your job stop you from finding out your options. At Bond & Botes, P.C., we offer free initial consultations where you can meet face-to-face with one of our attorneys to discuss the specifics of your case. We have convenient locations in Alabama and Mississippi. If you feel overwhelmed by debts and bills, please don’t wait to give us a call!