“If I file bankruptcy, will I lose my job?”
A lot of people worry about the impact that a bankruptcy filing can have on their employment prospects. Certainly, having a bankruptcy on your record is never a good thing. But can you lose your job over it?
As it happens, Section 525 of the Bankruptcy Code deals specifically with this issue. It says that
“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.
On the face of it, this section does what it seems to do: prohibits employers from firing people just because they file bankruptcy had gone bankrupt in the past. But the most important part of this section is the word “solely.” This means that if you get fired after filing bankruptcy, and in addition to the bankruptcy your employer had other real reasons for firing you, they are off the hook.
An example of this is the case of Insure One v. Koestner, a 1996 decision from Chicago, Illinois. In that case the bankrupt debtor was getting his wages garnished. To stop the garnishment, he filed a Chapter 7 bankruptcy like a lot of people do. His employer refused to stop withholding the wages, so he had his lawyer file an emergency motion with the Bankruptcy Court to stop his employer from withholding money from his paycheck. This apparently just off his employer, and he got fired three days later.
So the debtor sued his employer-now his former employer-and the bankruptcy judge determined that the reason he was fired was for asserting his rights under the bankruptcy code. So the Bankruptcy Court awarded Mr. Koestner a judgment for $6355.76 plus attorneys fees. The employer appealed that decision and lost.
This protection only applies to debtors who have already filed bankruptcy. Employees who have been fired after telling their boss they planned to file bankruptcy have been found not to have a claim under 11 U.S.C. Sec. 525(b). So don’t tell your boss you’re going to file bankruptcy if you think they’ll hold it against you.
Now, it’s important to note that the bankruptcy code protections against being fired for filing bankruptcy has nothing to do with whether or not you can be denied employment in the first place because of the bankruptcy. Government employers are not allowed to deny perspective job applicants solely because of a bankruptcy filing, but private employers are most definitely allowed to do so. So if you have a bankruptcy on your record and you apply for a new job, you can legally be denied employment just because of a past bankruptcy. See, for example, Myers v. Toojay’s Mgmt. Corp., 640 F. 3d 1278 (11th Cir. 2011).
Now, since the great recession the number of middle-class Americans who have a bankruptcy on the record in the past 10 years has gone up a lot. And most employers in my experience just don’t care. They’re primarily concerned with how you deal with them, and not how you deal with people you owe money to. Most bosses know that financial problems happen to people and even if they personally are opposed to bankruptcy, aren’t willing to lose a good employee over it. But, some employers do care, particularly those in the financial industry.
So while bankruptcy can have an impact on your future employment prospects, it shouldn’t be so important as to justify living in virtual slavery to your creditors for years. Consider the consequences and the benefits of bankruptcy and non-bankruptcy courses of action, and make an informed decision.
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