Updated: 10/25/2017 by Nick Gajewski
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: no, filing a case should not have any impact.
The Bankruptcy Code at 11 U.S.C. §525 explicitly 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. The court never publishes any information about cases that are filed, so your employer wouldn’t ever know you had filed a case unless you told your employer yourself.
However, in Chapter 13 cases, it is not unusual for employers 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 many cases, the person who files a Chapter 13 case can make payments on their case through the payroll department of their job. The Chapter 13 Court or Trustee can send the necessary information to your payroll department and they will automatically deduct your Chapter 13 payments the same way they deduct your income taxes or health insurance.
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.
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.
Certain employers, however, may require disclosure for such jobs that require a security clearance and, as such, you should always disclose that you have filed if you are required to do so.
If you’re thinking 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, Mississippi, and Tennessee. If you feel overwhelmed by debts and bills, please don’t wait to give us a call!
This article was originally posted on 5/6/2016 by Amy Tanner.