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3 Important Things You Need to Know About Bankruptcy & Your Job

15 July 2015 by Becky Freeman

Bankruptcy is really nothing to be ashamed of. Sometimes filing for bankruptcy is the smartest financial decision that you can make in your current situation, and you should give yourself credit for handling the problem in the most efficient way and not feel bad about your decision.

Still, you probably don't want your bankruptcy to be public knowledge, for any number of reasons. No matter how necessary the bankruptcy is, some people will judge you negatively because of it. It's no surprise that one of the primary concerns for potential debtors is the question of whether or not their current or future employers will find out about it. Here's what you need to know about bankruptcy and your job.

No One Will Tell Your Boss

If you're already employed, there's no notification that goes out to your current boss to let them know that you're bankrupt. In most cases, the only way that an employer will know about your bankruptcy is if you tell them yourself. However, there are a couple of scenarios in which people at your job may find out.

The first possibility occurs if your Chapter 13 bankruptcy plan calls for your wages to be garnished. Chapter 13 is a repayment plan, rather than a plan that wipes out debt the way that a Chapter 7 does, and in some cases, your wages will be garnished in order to make the repayments.

In this case, though, the person who will need to be informed is the person in charge of payroll or human resources. Chances are, word will never get to your boss. It's fairly common for people to have their wages garnished for bankruptcy payments, child support payments, and other debts, and most payroll managers know to be discreet.

The other possibility is that your boss will run a credit check on you, with your permission, and the bankruptcy will show up there. This is unusual— while it's common to check the credit of potential employees, it's far less common to check the credit of current employees in good standing. You'll have to sign a permission slip allowing the credit check, so at least you'll know that it's coming.

You Can't Be Fired

Or at least, you can't be fired just for having gone through a bankruptcy. According to the current bankruptcy laws, you can't be discriminated against because you filed for bankruptcy or because you have unpaid debt that will be discharged in a bankruptcy.

However, if you live in a right-to-work state, you should know that while you can't be fired for discriminatory reasons, like filing a bankruptcy, you can be fired for any legal reason or no reason at all. And even in a state that doesn't have right-to-work laws, you can be fired if there were other problems with your performance that merited firing, even if the decision is made after the employer discovers you bankruptcy. All the employer has to do is not mention bankruptcy as their reason for the firing, and give another legal reason instead.

Don't worry too much, though—if you're a long-term stable employee with a good track record, you probably have nothing to fear even if your bankruptcy becomes known.

You May Not Get Hired

It's not all good news. If you don't have a job right now, or if you think you may be job-hunting at some point following your bankruptcy, the Chapter 7 or 13 can hurt you. Technically, the nondiscrimination laws protect you as a job-seeker; it's not legal to reject you for employment because you filed for bankruptcy. But there's a loophole; it's perfectly legal for a potential employer to reject your for having bad credit.

It may not be that common to run a credit check on a current employee, but it's increasingly common to run a credit check on a potential employee, where your bankruptcy and lowered credit score will be obvious. And bad credit is a turn-off for employers, who often identify debtors as potential theft risks.

If you're asked for a credit check in the pre-employment phase, your best bet is to be honest about your debt and your bankruptcy. If you can convince the boss that you're honest and forthright, you may be seen as a less risky choice.

No matter how concerned you are with the impact of a bankruptcy on your career, you still have to deal with the debt. Ask a bankruptcy attorney through resources like http://www.wflaw.net to help you explore all other options before making the decision to file for bankruptcy. 

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