How Will Bankruptcy Affect My Job?

By Carron Nicks, Attorney
A bankruptcy is not supposed to affect your job, but the reasons you filed bankruptcy may cause you a headache.

If you’re considering filing for bankruptcy, it’s common to worry if you’ll have to disclose it when applying for a new job, whether your long-time employer will find out and demote you (or worse, fire you), or if it will jeopardize your security clearance or professional license. Fortunately, the bankruptcy code addresses discrimination in the workplace. But it doesn’t prohibit all types of discrimination. Also, it doesn’t prevent employers from considering the circumstances leading up to the bankruptcy

Can a Government Employer Deny Me a Job Because of a Bankruptcy?

Bankruptcy Code section 525 addresses discrimination by government and by private employers, but it doesn’t apply the same standard to both. Potential government employees enjoy greater protection because an agency is forbidden from hiring or firing someone based on a bankruptcy filing.

However, even though a government employer can’t discriminate based on the bankruptcy alone, that same employer can make hiring decisions based on your credit history, especially for money-handling jobs, such as a cashier position.

What If I Need a Security Clearance?

Filing for bankruptcy doesn’t disqualify you from holding a security clearance, but the circumstances that led to the bankruptcy can be relevant. The U.S. Department of Defense investigates and issues most security clearances to government employees and the employees of government contractors.

The investigation delves into many areas, most notably your financial health because people suffering from financial distress are more likely to make risky decisions, are more vulnerable to blackmail, and are more susceptible to engaging in criminal activities to get money.

You can expect the DOD to consider the following factors:

  • your ability to pay your bills
  • your spending habits
  • your income sources
  • any gambling proclivities
  • any drug or alcohol use that might make you vulnerable
  • any crimes you’ve committed, and
  • your tax history.

The DOD weighs these factors against other pertinent facts, such as how long ago a particular act occurred and whether you’re still suffering from a particular problem. Additionally, bankruptcy can protect your security clearance because it resolves many of the financial issues relevant to the investigation. A debt-free individual is less likely to embezzle funds or accept a bribe.

Can a Private Employer Deny Me a Job Because of a Bankruptcy?

The code doesn’t protect you quite as much if you’re dealing with a private employer. Specifically, it prohibits private employers from firing employees based on bankruptcy alone. Unlike the government provision, it leaves out the section that says the employer cannot “deny employment” due to bankruptcy.

Some courts have reviewed this issue, and most, but not all, have reasoned that Congress must have left the phrase out on purpose. Therefore, private employers can use bankruptcy as the basis for denying employment. Whether a particular private employer will do so will likely depend on how the courts have ruled in your area.

Can I Be Fired Because of a Bankruptcy Case?

Once you’re hired, the law applies to both government and private employers in the same way. An employer can’t discriminate because you filed a bankruptcy case. If you’re fired, laid off, demoted, denied a bonus, or suffer another negative employer action, the bankruptcy cannot be the sole reason for the action.

Keep in mind, however, that even though the bankruptcy code prohibits it, proving employment discrimination based on a bankruptcy is difficult. An employer can fire someone for many reasons. In fact, in some states, right-to-work laws allow private employers to fire workers without any cause at all.

Will Bankruptcy Jeopardize My Professional License?

All professions require members to adhere to standards of character and fitness. Doctors, lawyers, accountants, counselors, nurses, insurance agents, stock brokers, pharmacists and other professionals undergo a rigorous application process that often includes background and credit checks before they can qualify. The bankruptcy code prohibits discrimination against someone applying for a professional license just because the candidate filed for bankruptcy.

However, some professions require good financial standing to maintain a license, and neglect of financial matters is one of the things that could lead to its loss. Just as in the security clearance process, states and regulatory authorities will dig deeper and look at the circumstances that leading up to the bankruptcy, rather than to the bankruptcy itself.

Also, filing bankruptcy can be a way to keep your license. For instance, in California, a contractor must resolve certain financial disputes against them or risk losing a contractor’s license. Wiping out the debt in bankruptcy will allow a contractor who can’t pay an obligation to stay in good standing with the state’s licensing board.

Questions for Your Attorney

  • Can my employer fire me for lying about my bankruptcy on my employment application?
  • I just filed bankruptcy. Do I have to tell my employer?
  • Can I get a liquor license if I filed for bankruptcy?
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