“Can I lose my job for filing for bankruptcy”? This is a question I get a lot from clients who come to me. This is the short answer.
Federal law prohibits discrimination based on merely filing for bankruptcy. However, there are certain professions where it can be considered in the determination of hiring or maintaining employment in a particular position. Bankers, persons with a fiduciary relationship over a person's money, can have their employment scrutinized for filing.
I know. Not so short.
It is a nuanced and in this post, I want us to go deepert to help you understand your rights.
Keep in mind that everyone’s situation is different, and your best recourse is to talk to a bankruptcy attorney.
The Law Is on Your Side
Federal law includes a specific provision designed to protect people who file for bankruptcy from being punished in the workplace. It’s found in Section 525 of the Bankruptcy Code (11 U.S.C. § 525), and it’s one of the most important protections that filers don’t know about.
In plain English, this law says that an employer cannot terminate you, demote you, or discriminate against you solely because you filed for bankruptcy.
The keyword here, “solely”, is important. It means that if bankruptcy is the only reason behind a negative employment action, the employer is breaking the law. However, if an employer has other legitimate, documented reasons for a decision, the issue gets more complicated.
The protections under § 525 aren’t identical for every type of employer, though. There’s an important legal distinction between government and private employers that you need to understand.
Government Employers vs. Private Employers: A Key Distinction
Section 525 is actually divided into two parts, and the protections they offer are not the same.
Government Employers (§ 525(a))
If you work for a federal, state, or local government agency, or you’re applying for a government job, you have the broadest protection available. Under § 525(a), a government employer cannot deny you employment, fire you, or discriminate against you solely because of a bankruptcy filing. This applies to both current employees and job applicants.
In practical terms, this means a government agency cannot pull your application from consideration just because they discovered a bankruptcy on your record.
Private Employers (§ 525(b))
Private employers are also prohibited from firing a current employee solely because of a bankruptcy filing. So if you’re working at a private company today and you file for Chapter 7 or Chapter 13, your employer cannot legally terminate you for that reason alone.
Here’s the gap, between the two: § 525(b) does not explicitly address hiring decisions by private employers. The statute protects current employees, but it’s silent on whether a private company can decline to hire an applicant based on a bankruptcy filing.
Courts around the country have interpreted this differently. Some have extended the protection to job applicants at private companies, while others have not. The result depends on your jurisdiction. If you’re in the middle of a job search and this concerns you, it’s worth having a conversation with an attorney who can advise you based on the law in your area.
If you are in North Carolina, give us a call.
Background Checks, Credit Reports, and What Employers Can See
Even with legal protections in place, it’s natural to wonder: Will my employer even find out?
Bankruptcy filings are public records, which means they can show up on background checks. A Chapter 7 bankruptcy stays on your credit report for up to 10 years, while a Chapter 13 bankruptcy remains for up to 7 years. If an employer runs a credit check as part of the hiring or review process, a bankruptcy could appear.
That said, there are guardrails. Under the Fair Credit Reporting Act (FCRA), an employer must obtain your written consent before pulling your credit report. They can’t do it without your knowledge. And if they make a decision that negatively impacts you based on what they find, they’re required to notify you and give you a copy of the report.
It’s also worth noting that many states have passed their own laws restricting how employers can use credit information in hiring and employment decisions. These state laws may provide additional protection beyond what federal law offers.
The bottom line: yes, bankruptcy can show up on a screening. But there are legal limits on how that information can be obtained and used.
Industries Where Bankruptcy May Matter More
For the vast majority of jobs, a bankruptcy filing will not be a factor in your employment. Most employers don’t run credit checks, and most positions don’t need the level of scrutiny that would make bankruptcy relevant.
That said, there are a handful of industries and roles where you should be more aware:
Financial services. Banks, insurance companies, and brokerage firms commonly run credit checks as a standard part of the hiring process. A bankruptcy filing may be viewed as a risk factor in these industries, particularly for roles that involve managing money or client assets.
Jobs requiring a security clearance. Unresolved debt can be a concern during a security clearance review, because it may be seen as making someone vulnerable to outside pressure. However, proactively filing for bankruptcy to get your finances in order is often viewed more favorably than ignoring the problem.
Law enforcement and government contracting. Similar to financial services, these fields often involve credit screening and background reviews as part of the vetting process.
Fiduciary and financial management roles. Any position that involves significant access to company funds or fiduciary responsibility over other people’s money may involve a closer look at your financial history.
If your job falls into one of these categories, that doesn’t mean bankruptcy is off the table. It means it’s especially important to talk through your specific situation with an attorney before you file.
Don’t Let Fear Hold You Back
The fear of losing a job is one of the most common reasons people put off filing for bankruptcy, even when doing so would dramatically improve their financial situation. But for the overwhelming majority of people, bankruptcy does not cost them their job, and it does not derail their career.
The law provides meaningful protections. And with the right guidance, you can navigate the process in a way that accounts for your specific employment situation.
Every case is different. If you’re worried about how bankruptcy could affect your job, the best thing you can do is talk to someone who can give you answers tailored to your circumstances. We offer free consultations, and we’re happy to walk you through your options, answer your questions, and help you make the decision that’s right for you.
Ready to take the next step? Contact our office today to schedule your free, confidential consultation.Disclaimer: This blog post is for informational purposes only and does not constitute legal advice. Every situation is unique, and the information provided here should not be relied upon as a substitute for consultation with a qualified bankruptcy attorney. If you have questions about your specific circumstances, please contact our office to schedule a consultation.