If you intend to file for bankruptcy, you might be concerned about the effect it might have on your employment. Can your employer find out about your Chapter 7 or 13 bankruptcy? Can you be fired because of the bankruptcy? And can a possible employer deny you a job because you filed for bankruptcy?
No employer—government or private—can terminate you solely because you filed for bankruptcy. And no employer may use a bankruptcy filing as cause to change other terms or conditions of your employment, such as a salary reduction, demotion or other negative action.
If you are fired shortly after your employer learns that you filed for bankruptcy, and no other cause exists, you might have a case against the employer for illegal bankruptcy discrimination.
There are various ways that your employer can find out about your bankruptcy. If for instance you are subject to a wage execution, the employer will receive notice of the filing in order to stop the garnishment. Other if you are in a Chapter 13, the court may require that your monthly trustee payment be automatically deducted from your wages and sent to the bankruptcy court. Effectively, your employer will be enlisted to ensure that you honor your Chapter 13 plan.
Will bankruptcy affect your future job prospects? The answer is: it depends. No federal, state, or local government agency can consider your bankruptcy when deciding whether to employ you. Private employers, however, are not restricted by a similar rule, and some debtors find that having a bankruptcy in their past comes back to haunt them—primarily when applying for jobs with financial responsibilities (payroll, bookkeeping, accounting, etc.).
Many private employers conduct a credit check on job applicants as a matter of course and will find out about your bankruptcy from the credit report. While employers need your permission to run a credit check, employers can also refuse to hire you if you do not authorize that. If you are asked to give this consent, you should consider speaking openly about what the employer will find in your file. Being candid upfront about problems that are behind you might impress the interviewer and outweigh any negative effects of the bankruptcy filing itself.