Filing for bankruptcy is a significant decision, and many wonder how it might affect their future employment opportunities. You might be asking: Does filing for bankruptcy impact your ability to get a job?

Filing for bankruptcy does not prevent government employers from hiring you. While private employers may consider your financial history, it’s generally only a concern for positions involving financial responsibilities. Most employers focus on qualifications and experience over bankruptcy filings.

With decades of experience helping clients navigate the impact of bankruptcy, I’ve advised many on how to address employment concerns during and after the process. Let’s explore how bankruptcy may affect job prospects and what you can do to minimize its impact.

Financial Discrimination

By law, your employer cannot discriminate against you due to bankruptcy. If your employer learns that you are going through bankruptcy, they cannot fire you, demote you, or otherwise change your compensation because of it. This is against the law, and if it happens you should contact an Athens attorney. Some employers might look for other reasons to fire a bankrupt employee – tardiness, workplace behaviour and so on. Firing someone for these reasons is not against the law, so these situations can quickly become legal quagmires if the employer is being unpleasant.

You should know that the discrimination laws pertain to your current employer. This has nothing to do with looking for employment and does not affect the actions of potential employers. You can’t depend on it for protection on the job search.

Private Employers

A private employer is any hiring company or business that is not part of the government (there are other parts to that definition, but this is the important part). The average restaurant down the street or corporate office downtown is a private employer, no matter how big or small. These private employers can indeed make decisions about whether or not to hire you based on bankruptcy. … if they know about it. Some employers will run basic background and financial checks, or outright ask people if they have had a bankruptcy. Bankruptcies stay on your financial record for up to 10 years.

If it comes down to a choice between someone with bankruptcy in the past and someone without one, many employers prefer to choose someone without bankruptcy. Some businesses may not care, and some may consider the time that has passed. However, it is not illegal for companies to make decisions this way.

Government Jobs

Would a Bankruptcy Filing Prohibit a Government Job? No, filing for bankruptcy does not prohibit you from obtaining a government job. Federal law prevents government employers from discriminating against applicants or employees based on a past or current bankruptcy filing. However, private sector employers may consider credit history during the hiring process.

Security Clearances

Some jobs have security clearances for dealing with sensitive materials, armed forces, legal matters, kids and many other things where an extra “filter” is needed when hiring. Generally speaking, it may be more difficult for a person with a recent bankruptcy to apply for a job involving a security clearance. Keep this in mind when applying for jobs. On the plus side, the government may actually prefer giving security clearance to someone coming out of bankruptcy because they are less likely to be a security risk via overwhelming debt.

 

Impact of Bankruptcy on Job Searches

Ambiguous Findings from Research

Paul Goldsmith-Pinkham, a Yale finance professor, and his team analyzed the effects of bankruptcy on job searches. While their study in Sweden showed bankruptcy adversely impacted employment prospects, the U.S. socioeconomic structure differs, making direct comparisons challenging.

Context in the U.S.

Following the 2008 financial crisis, over 1.5 million Americans declared bankruptcy. This decision affected creditworthiness, housing opportunities, and sparked questions about its impact on employment.

Goldsmith-Pinkham’s interest in this topic grew during his time at the Federal Reserve Bank of New York, where many believed bankruptcy hurt their job prospects. However, concrete evidence linking bankruptcy to employment challenges in the U.S. was lacking.

Analyzing Real-World Data

To explore this connection, researchers analyzed bankruptcy filings and their impact on credit and employment using:

• Equifax Consumer Credit Panel data
• Social Security Administration tax records

Chapter 7 vs. Chapter 13 Comparison

Key differences between Chapter 7 and Chapter 13 bankruptcy helped provide insights:

• Chapter 7: Assets are liquidated, and the bankruptcy flag remains for 10 years.
• Chapter 13: Debts are repaid through a court-approved plan, with the flag removed after seven years.

This three-year difference allowed researchers to compare employment and credit outcomes for individuals whose bankruptcy flags had expired versus those still active.

Key Findings

• Individuals with removed Chapter 13 flags had better credit outcomes, such as higher credit limits and increased access to mortgages.
• Employment prospects showed minimal differences between groups with and without bankruptcy flags, suggesting bankruptcy status does not significantly impact job eligibility.

Policy Implications

This study highlights a potential methodology for identifying biases in hiring practices. By comparing employment outcomes across groups, policymakers can better assess discrimination in workplace hiring.

 

While bankruptcy impacts credit and housing, this study provides reassurance that its effect on employment prospects is minimal. Job seekers with bankruptcy records can focus on their qualifications and experience rather than worrying about how their financial history might affect their job search.

 

Will Employers Know If Someone Filed Bankruptcy?

The answer to whether your employer will learn that you filed for bankruptcy is maybe. It’s dependent on a couple of things.

1. Do you owe your employer money? If so, they will be listed as a creditor on your bankruptcy filing and will be notified you filed.
2. Do you have any current garnishments? If so, your employer will receive a notice telling them to stop withholding the garnished funds for the creditor.

If neither of these situations applies to you, it’s unlikely that your employer will know about your bankruptcy filing. Of course, you may also choose to tell your employer, particularly if you must appear in bankruptcy court during a scheduled shift. Just remember, filing bankruptcy is not just cause for an employer to fire you.

 

Will Potential Employers Know About a Bankruptcy Filing?

Unless you tell them or they run a credit check on potential employees, it’s unlikely that a new employer will learn of your bankruptcy filing. Most employers don’t care about your finances if you can complete assigned tasks. Despite popular belief, some employers don’t even check credit reports. Additionally, some states have laws limiting how much credit reports can play into hiring decisions.

As we mentioned earlier, private-sector employers have more leeway when using credit report information against you during the hiring process. In some cases, employers will use things like security clearance or past job history to avoid hiring someone with a bankruptcy in their financial history. However, many employers don’t consider bankruptcy when hiring, and most don’t include the topic in their hiring process.

If you have more questions about life after bankruptcy, contact Morgan & Morgan at (706) 548-7070 today. We can help you find your way.

 

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