Bankruptcy Law Basics

How Does Bankruptcy Impact an Individual’s Employment?

Most individuals who are struggling to pay their debt do not have to worry about the impact of a bankruptcy on their employment if they are already employed. However, bankruptcy may have an impact on a person’s employment if they are applying for a job with a private company.

Individuals who are thinking about filing bankruptcy, may have questions about whether their current employer will know about their bankruptcy filing? Can an employer fire them because of their history of bankruptcy?  Can a potential employer decide not to hire them because of their bankruptcy?

When an individual files bankruptcy it becomes public record. Thus, employers may learn about an individual’s bankruptcy filing. For most people, however, a bankruptcy filing won’t affect an individual’s current employment. This article will discuss the impacts of a bankruptcy on a person’s current and future employment.

Will an Individual Be Fired Due to Bankruptcy?

Fortunately, no employer can fire an individual because they filed for bankruptcy. Government or private employers can’t discriminate against individuals solely because they filed for bankruptcy. Further, an employer can’t use an individual’s bankruptcy filing to change the terms of their employment. Individuals who are worried about being demoted, having their salary reduced, or having their responsibilities revoked shouldn’t worry. Employers cannot change any of these employment terms merely because an individual has filed for bankruptcy.

Individuals who feel they have been fired solely because of their bankruptcy filing should speak with an employment lawyer. Firing someone because of bankruptcy may be grounds for an individual to bring a claim of action against their employer for illegal discrimination.

Individuals that file bankruptcy can still be fired for other valid reasons. Filing bankruptcy does not mean an employee cannot be fired. An employer can change the terms and conditions of the employment contract only for valid reasons. For example, if the individual comes late to work every day or doesn’t perform their job duties, their employer can still fire them even though they filed for bankruptcy.

Will an Employer Find Out About a Bankruptcy Filing?

Generally, employers don’t find out about a bankruptcy filing. However, there are a few instances where an employer will find out about an individual’s filing. Below we will discuss some of the ways that an employer may find out about a bankruptcy filing.

Using bankruptcy to stop a wage garnishment – Individuals that are facing a wage garnishment from their creditors will likely need to notify their employer of their bankruptcy filing. To stop a wage garnishment, the individual’s employer will need to receive notice of the bankruptcy filing. Individuals who are embarrassed about their bankruptcy filing, should not be. Most employers will already know about an individual’s financial distress once they receive a garnishment letter from the employee's creditors. For some employers, a bankruptcy filing may be looked at positively because the individual is taking the necessary steps to fix their financial situation.

Filing a Chapter 13 bankruptcy – When an individual files a Chapter 13 bankruptcy, the filer must make payments to their creditors under a repayment plan. In some jurisdictions, a judge will order the plan payments to be automatically taken from a filer’s wages and sent to their creditors. Thus, an employer will likely find out about the bankruptcy filing. Not all jurisdictions take payments directly from an individual’s wages. If a person is concerned about this, they should speak with a bankruptcy lawyer who may be able to answer questions surrounding such.

 Owing an employer money – Individuals who file bankruptcy must complete a bankruptcy petition. Within the bankruptcy petition, individuals must include all their creditors’ names and addresses. If an individual owes their employer money, the employer will need to be listed on the petition to be notified of the bankruptcy filing.

 Telling an employer – Some individuals may choose to tell their employer about their bankruptcy filing if they feel comfortable to do so. Individuals are not under any legal obligation to notify their employer about their bankruptcy filing. Individuals who wish to disclose this information can do so at their own discretion.

Impacts of Bankruptcy on Future Employment

Public sector employers are not allowed to consider an individual’s bankruptcy filing when deciding whether to hire someone for a position. However, private employers are not limited to the same rules. Private employers can consider a person’s bankruptcy filing when deciding whether to hire the person for a certain position.  Under Section 525(a) of the Bankruptcy Code, there is no mention of whether a private employer can discriminate. The section provides:

“A governmental unit may not…. 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 (Title 11) or a bankruptcy or a debtor under the Bankruptcy Act.”

Private employers are limited to 525(b) of the Bankruptcy Code which only prohibits discrimination based on an individual’s bankruptcy filing but does not mention anything about denying individual employment. Under section 525(b) it provides:

“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 bankruptcy under the Bankruptcy Act, or an individual associated with such debtor.”

Private employers will find out about an individual’s bankruptcy filing if they run an applicant’s credit report as part of a background check before the individual is hired. Depending on which chapter of bankruptcy an individual file, the bankruptcy filing will remain on a credit report for a certain time. Individuals who file Chapter 7 bankruptcy, will have their bankruptcy filing remain on their credit report for ten years. While, individuals who file for Chapter 13 bankruptcy, will see it on their credit report for seven years. Most private employers, however, typically will not reject someone who filed bankruptcy unless the job position involves finance and/or directly relates to handling money on a regular basis.

Types of Employment that May Be Impacted by Bankruptcy

Some jobs that bankruptcy may impact are jobs that require high-level screening. For example, when someone applies for a position as a financial advisor or public accountant the employer may review an applicant’s financial history. Further, jobs like the CIA or armed forces may require additional screening which could be impacted by an individual’s bankruptcy filing. However, filing bankruptcy does not necessarily mean that individuals will not be able to get jobs in these fields because they have filed for bankruptcy. Most of the time, people considering bankruptcy had already been in financial distress which alone may already have given reason to a prospective employer to not hire a person. Some employers will simply disqualify an applicant because of their financial troubles. However, by filing bankruptcy and getting rid of debts, employers may view this act in the applicant's favor as an attempt to get a fresh start and therefore a bankruptcy actually may even give the applicant a better chance of getting hired.

If a private employer denies an individual a job opportunity because of their bankruptcy, they must provide a reason for why they did not hire the person. For example, if the employer does not hire the individual because of their bankruptcy and it is a position where the individual would be managing money, they would have to provide the individual that reason.


Individuals who want to remove their debt but are worried about their future employment, should not be. Bankruptcy only impacts a very small portion of those who file. Usually, those who file bankruptcy and have no more debt are more likely to be accepted for a position over someone who is struggling financially. It is rare that an individual will be denied a position because of their bankruptcy. Moreover, employers can never fire an individual because of their bankruptcy. Thus, individuals who are considering bankruptcy but are worried about being fired from their job have nothing to worry about.

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