How bankruptcy affects your job or future employment

68416070_MDeclaring bankruptcy is usually a tough decision for people in financially-strained situations. While it can give you a fresh start to your financial life, the first few years are usually accompanied by social stigmas. Bankruptcy makes it difficult to get favorable credit due to the negative impact it will have on your credit score. Bankruptcy may also affect your job prospect – and this seems to be a major concern for a lot of folks.

In this article, we examine how bankruptcy may affect your current job, as well as your potential to secure new employment.

What Happens After Bankruptcy?

There are two main types of personal bankruptcy: Chapter 7 and Chapter 13. Under Chapter 7 (also known as liquidation bankruptcy), most of your unsecured debts are discharged. However, other debts like child support, alimony, student loan, and secured debts are not discharged.

Under Chapter 13 (also known as reorganization bankruptcy), the court drafts a plan to allow you to repay your outstanding debts in the next three to five years.

Once you file for bankruptcy, the information becomes public. Online bankruptcy records are usually available on the government’s Public Access to Court Electronic Records (PACER) system. However, only people that have created accounts on the system have access to it. And in some cases, payment is required before access to the records is granted.

What this shows is that theoretically speaking, your current employer or a prospective employer can access your bankruptcy record. That’s why it’s useful to know when they can – and when they cannot – and how it may affect your job.

How Bankruptcy Affects Your Job Search Process

According to, 96% of employers conduct one or more types of employment background screening during the hiring process. However, only 25% of employers conduct credit checks on applicants for specific positions, while 6% carry out one irrespective of the position.

If you’re applying for a role that will involve some financial responsibilities, employers are more likely to conduct a credit history check. A credit check gives them a peek into your past spending habits, and they use this to judge your money management skills. Also, if you’re applying for a government or management position, expect the employer to conduct a check to gauge your worthiness to handle sensitive information. If you’ve filed for bankruptcy before, it will show up in a credit check.

However, the Fair Credit Reporting Act stipulates that employers seek your formal consent before carrying out a background check on an applicant. Unfortunately, if you refuse to provide consent, employers have to right to deny you employment. If you do grant consent, your bankruptcy history will pop up and it may affect your employment prospects.

While the Bankruptcy Code makes it illegal for employers to refuse to hire you solely based on bankruptcy, they’re still allowed to consider applicants’ financial history. Unfortunately, if you’ve filed for bankruptcy, there’s a strong chance you have a poor financial history that employers can hold against you.

The best way to prevent a prospective employer from finding out about your bankruptcy is to apply for non-financial roles or roles that do not require a credit check.

How Bankruptcy May Affect Your Current Job

According to Section 525 of the Bankruptcy Code, no government or private employer has the right to fire you based solely on bankruptcy. Your employer can neither demote nor take any other action against you as it would be considered an act of discrimination.

However, if you acted irresponsibly in your finances – maybe through gambling and addiction – and your bankruptcy situation is now affecting your work, employers can take any action they deem fit.

The issue lies in the difficulty of trying to prove discrimination. For instance, if your employer fires you after they learned about your bankruptcy, they can claim that they did so because of your subpar performance. Good luck trying to prove you were wrongfully terminated.

How Employers Find Out About Bankruptcy

The good news is that, in most cases, you are not obliged to tell your employer when you file for bankruptcy. However, there are some scenarios where this is impossible.

  • Stopping a wage garnishment

If your wage is garnished and you file for bankruptcy, you need to notify your employer to stop the garnishment. But looking at it from the bright side, if your wage is being garnished, then your employer already knew you were in a financially-stressed situation.

  • Making Chapter 13 payments

As stated earlier, Chapter 13 involves the reorganization of your debts, so you can repay them within the next three to five years. When you file for Chapter 13, the bankruptcy judge might order Chapter 13 payments to be directly deducted from your wage and sent to the bankruptcy court. In that case, your employer has to be directly involved.

  • You owe your employer money.

When filing for bankruptcy, you are required to list out all the debts and the accompanying creditors. All your creditors – which includes your employer in this case – will be notified of your bankruptcy case.

We’re here to help. Contact us for more information.

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