Individuals who are considering bankruptcy are often concerned about the effect it will have on
their employment. For example, will your employer find out you filed for bankruptcy?
Could you be fired because of it, or be denied a job during the application phase because of a bankruptcy filing?
Although your employer might discover you filed for bankruptcy, in most cases, a bankruptcy will not affect your current employment. Below is some more information regarding the effects of bankruptcy on your job status:
Your employer may or may not find out
Employers rarely learn of their employees’ Chapter 7 bankruptcy filings. When they do, it’s usually because a creditor was forced to file a lawsuit against you and then obtained a judgment to begin having your wages garnished. Your employer will be aware of wage garnishment, and thus be aware of bankruptcy proceedings that stop wage garnishment from continuing. Therefore, at the very least, your employer could know you are having financial troubles.
Employers are much more likely to learn about Chapter 13 bankruptcy. Bankruptcy judges often order Chapter 13 payments to be automatically deducted from wages to be sent to the court. Your employer will act as a collection agency of sorts in this situation.
Bankruptcy will not affect your current job status
Employers in both the public and private sector are legally prohibited from firing an employee because that person filed for bankruptcy. Employers are also prohibited from discriminating against individuals who file for bankruptcy when it comes to salary reductions, demotions or stripped responsibilities.
An employer is not, however, prohibited from performing these actions if there is a legitimate reason to do so, regardless of whether you have filed for bankruptcy. Your bankruptcy will not protect you from adverse employment actions if your own actions merit them.
Bankruptcy could affect a job application
Public sector employers cannot take bankruptcy filings into consideration when making hiring decisions. However, there is no such rule for private sector employers. Therefore, in some cases, having a bankruptcy on your record could make it a bit more difficult for you to find employment, especially if you are looking for jobs that require you to deal with money (such as accounting, bookkeeping, payroll, financial consulting, etc.).
Private sector employers often conduct credit checks as part of their overall background checks, which means they will find out about bankruptcies. They require your permission to perform a credit check and may refuse to hire you if you do not consent. Thus, if you are asked to submit to a credit check, it might be a good idea to be upfront about what the company will find so you can get ahead of the issue before your bankruptcy gets discovered.