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Can You Lose Your Job If You File For Bankruptcy?

Can You Lose Your Job If You File For Bankruptcy?

One of the top concerns on the minds of most prospective or new bankruptcy filers is what will happen to their job(s) after they file for bankruptcy protection. Bankruptcy debtors worry that their employer will find out about their bankruptcy filing and that their job may somehow be compromised. Can you lose your job if you file for bankruptcy protection?

The answer is clear and unambiguous: absolutely not. In fact, the reverse is true because there are statutory protections in place in the U.S. Bankruptcy Code to make sure that that very thing never happens to bankruptcy debtors.

Most Employers May Never Know That You Even Filed for Bankruptcy Relief

In many instances, a person employer never finds out that he or she filed for bankruptcy relief. Here are the major exceptions to this:

  1. The debtor’s employer is a creditor (because creditors are listed in the bankruptcy filings and receive notices from the court to update them of the bankruptcy proceedings).
  2. There is a wage garnishment in place that triggered the bankruptcy filing (because it will end with the bankruptcy filing automatically due to the automatic stay protections).
  3. There is some sort of credit, security, or background check that needs to be run because of the nature of the employment and the bankruptcy filing surfaces in the court and public records that are listed in the query results for that check.

Alternatively, an employer may ask an employment candidate to voluntarily disclose information about a priorbankruptcy filing in the employment application. This may be because of fiduciary duties associated with the job, money management duties expected in the position, and to assess the candor of the applicant’s disclosures on the employment application. The best practice is always to fully disclose and explain, rather than to hide and hope that public court records are not uncovered and seen.

Federal Bankruptcy Laws Prohibit Discrimination in Employment Against Debtors

Federal bankruptcy laws comprising the U.S. Bankruptcy Code (Chapter 11 of the U.S. Code) protect bankruptcy debtors from discrimination in the employment context. These laws specifically prevent the termination of a debtor’s job because of his or her filing for bankruptcy relief. Demotions, lost or forfeited promotions, and other forms of employment discrimination are also prohibited expressly in the Bankruptcy Code in 11 U.S.C. Section 525.

These statutory protections are recognized at the federal level, and each respective state adheres to them. The sanctions for violating these protections are steep, especially if the violation is deemed a willful and intentional one. The bankruptcy laws were created to give debtors a fresh start to rebuild themselves financially. Maintaining continued, stable employment is an integral part of that process and means of achievement of that goal.