Can an Employer Fire You for Filing Bankruptcy?

Employees who experience major financial problems and file for bankruptcy may wonder whether their employer will find out and fire them. Although this fear is understandable, federal anti-discrimination law provides meaningful protection. Your employer cannot fire, demote, or punish you solely for filing bankruptcy. This applies in both the public and private sectors.

However, the protections available to you depend on your circumstances and your employer, as a private-sector employer may consider your bankruptcy status in hiring decisions. If you believe that you experienced employment discrimination because of your status as a current or former debtor, contact an experienced bankruptcy attorney

Federal Bankruptcy Law Protections

Federal law, 11 U.S.C. § 525, is the anti-discrimination provision within the U.S. Bankruptcy Code that protects against discriminatory treatment. Under this federal statute, your status as a current or former debtor in the bankruptcy process cannot be the sole reason for an adverse employment action, and doing so may amount to illegal discrimination. That type of action is unlawful.

That said, while an employer cannot fire, demote, or punish an employee due to bankruptcy status, employers may still act on legitimate, unrelated grounds such as poor performance, misconduct, or layoffs. While the law protects against discrimination for a bankruptcy filing, it does not protect against all forms of termination. Further, depending on your employer, a bankruptcy filing can impact hiring decisions.

Bankruptcy Protections: Public vs. Private Employers

Section 525 distinguishes between government and private-sector employers.

• Public and government employers. The public sector can include a state or federal government agency acting as the employer. Under 11 U.S.C. § 525(a), a governmental employer cannot deny employment, terminate employment, or discriminate solely because a person is or has been a bankruptcy debtor. These protections apply to hiring, promotion, and continued employment.
• Private employers. Protections are more limited and are governed by 11 U.S.C. § 525(b). A private employer cannot terminate or discriminate against a current employee solely because the employee is or has been a bankruptcy debtor. The statute does not, however, explicitly bar private employers from hiring an applicant because of bankruptcy.

The type of adverse action prohibited under the law depends on the type of employer, and the law distinguishes between hiring decisions and decisions about continued employment.

Do Bankruptcy Protections Apply Before You’re Hired?

A major question is whether the protections apply before you were hired.

In the public sector, protections extend to applicants. A government employer cannot deny you a job solely because you are or have been a bankruptcy debtor. They cannot stop future job prospects based on your status as a debtor.

Courts have generally interpreted 11 U.S.C. § 525(b) as not prohibiting private employers from declining to hire an applicant based on bankruptcy status (current or past). Thus, private employers can run credit checks and decline to proceed with hiring based on bankruptcy.

Bankruptcy Information on Background Checks

For employment background checks, a bankruptcy can show up on a credit check and appear on a credit report. The Federal Credit Reporting Act (FCRA) governs how employers use credit information.

Bankruptcy information will stay on your credit report for up to 10 years, from the date of entry of the order or the date of adjudication by the bankruptcy court. For example, if you filed for bankruptcy under Chapter 7 or Chapter 13, the record could last for years.

Certain situations allow bankruptcy to be reported for longer than 10 years. It’s important to know your rights and what information employers may access. This information can impact jobs involving a security clearance.

Ways Employers Can Learn About Your Bankruptcy Status

In most cases, an employer will not learn about your bankruptcy filing unless you inform them. However, because bankruptcy filings are generally public records, employers may learn about a debtor’s bankruptcy through lawful means such as:

• PACER, the online federal court records system
• A notification that a wage garnishment has stopped
• A wage payment order from a court to deduct payments for a Chapter 13 bankruptcy from your paycheck
• Some positions involving financial matters may require regular credit checks as part of their routine processes

Certain professional licenses may require applicants to agree to background checks that can reveal a bankruptcy filing. However, the Bankruptcy Code protects you from being denied a professional license due to your bankruptcy status.

Requirements Before Taking an Adverse Employment Action

Before an employer can take a negative action against you based on your credit report, the FCRA requires the employer to give you:

• A copy of the report
• A summary of your FCRA rights

It must also send you a final adverse action notice after it makes the decision.

Remedies for Violations of Bankruptcy Protections

If an employer violates 11 U.S.C. § 525, potential remedies include the following:

• Restatement to the position
• Recovery of back pay and lost wages
• Compensation for related damages
• Injunctive relief to stop discriminatory conduct
• Possible recovery of attorney’s fees in certain cases

These types of claims are typically raised in bankruptcy court or federal court. The outcome depends on the specific facts of the case. The employee must show that bankruptcy was the sole motivating factor, so it’s important to have evidence to support the claims.

Practical Steps To Document Employer Actions

If you believe you are encountering bankruptcy discrimination, having evidence to support your claims could strengthen your case. If possible, take the following steps:

1. Keep a written record and save all related documents, such as emails, texts, performance reviews, notices to demote, and termination notices.
2. Note any comments or references about your bankruptcy, finances, or future employment.
3. Identify potential witnesses who could have observed relevant conduct.
4. Request a copy of the credit check that was used in the employment decision.
5. Speak with an experienced bankruptcy lawyer who can evaluate your case.

Consult a Bankruptcy Attorney

While federal law protects employees from being fired solely for filing bankruptcy, public employees enjoy broader protection than private-sector employees in hiring decisions. Either way, there are protections available to prevent your employer from firing you for filing bankruptcy.

If you need legal guidance regarding a bankruptcy case, use the Super Lawyers directory to locate an experienced bankruptcy attorney who can help. Depending on the issue, you may also want to consult an attorney who specializes in employment law. They can provide individualized guidance specific to your particular issue.