We all know that a bankruptcy will affect your credit score and history. Regardless of whether you chose to file for chapter 7 or chapter 13 bankruptcy, you may have questions about employment after bankruptcy. Can a potential employer decide not to hire you because of a bankruptcy on your credit report? How does it affect your current job? Will it prevent you from getting a security clearance or holding a professional license? Here’s what you need to know about employment after bankruptcy.
Employment After Bankruptcy: It Depends
While the bankruptcy process is intended to categorize your debts into two types (secured debts and unsecured debts) and give you a new start at a better financial future, bankruptcy laws won’t necessarily protect you from a potential employer who decides not to hire you. Whether they can legally make a decision to not hire you based solely on the fact you filed for a chapter 13 or chapter 7 bankruptcy depends on several factors.
“... a governmental unit may not deny, revoke, suspend… deny employment to… a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act… or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.”
Private industry potential employers may choose to not hire you based on your previous bankruptcy case. Depending on your industry, what is found on your credit report may or may not impact your ability to get the job. This includes your credit score (which can also affect what you pay for car insurance), past-due student loan payments, past-due medical bills, and filing for bankruptcy. Denying a job based only on credit score or bankruptcy is more common in certain industries.
It may seem a little unfair that you could be denied a job because you decided to go through the bankruptcy process. So, what happens if you’re looking for a job after filing for bankruptcy?
Applying for a Job After Your Bankruptcy Case
You’re certainly not alone in the need to file any type of bankruptcy or looking for a job afterward. According to the U.S. Courts website:
477,106 Chapter 7 cases were filed in 2019
288,039 Chapter 13 cases were filed in 2019
509 Chapter 12 cases were filed in 2019
Although the numbers of both Chapter 7 and 13 cases were slightly down from 2018, the less common Chapter 12 went slightly up. With a global pandemic and massive job layoffs, we could see an increase in the number of cases for 2020 and 2021.
Considering that the average amount of time that someone stays at the same job is 2.8 years, and that a bankruptcy remains on a credit report for seven years, we can feel sure that some of the debtors from both 2018 and 2019 looked for work after they received their discharge or they will be doing so in the near future.
In many cases, honesty may be the best policy, especially since most potential employers run credit checks on applicants as part of their background checks. Most applications ask whether you’ve filed for bankruptcy. If you answer “no”, but your credit report shows your recent case, it won’t be the bankruptcy that stops you from getting the job - you’ll be viewed as dishonest for lying in your application. Just be honest and be ready to talk about what led you to your decision. You don’t have to describe every student loan, medical bill, and other unsecured and secured debt you have in detail, just be ready to have an honest conversation with the interviewer if the topic comes up.
Many hiring managers may have experienced financial problems of their own. They can be more understanding than you think when it comes to dealing with student loans, medical bills, and other issues… even if it all came as a result of a job loss or a divorce. They also want to hire someone they know they can trust, someone they know will be honest with them. So, being honest right from the beginning can paint you in a favorable light although you’re talking about something very personal and difficult.
Your Bankruptcy and Your Current Job
If you’re worried about whether you’ll lose your current job because of your bankruptcy, we have good news for you! It’s safe to say that in most cases, filing for bankruptcy will not affect your current job at all. Your employer may not even learn about it unless your wages were being garnished (in which case they will be notified that the garnishment must stop) or you filed for Chapter 13 and your repayment plan includes having the monthly payments automatically withheld from your paycheck. Yet, even then, the bankruptcy code states that you are protected. It states that you cannot be fired, demoted, or subjected to a pay reduction because you sought bankruptcy relief.
Of course, if you’re worried about your job status and filing for bankruptcy, you can always schedule a consultation with our office to discuss your particular situation before filing your chapter 7 or chapter 13. Sometimes getting your questions answered about the process can help you feel better about how it may impact your job.
If you have a security clearance, you may be worried about how filing for bankruptcy may affect your job. The good news is that filing most likely will not affect your security clearance - in fact, it may actually improve your standing. Since you’ll have fewer debts, you may find that it improves your clearance in the future. However, if you need to obtain a security clearance after filing for bankruptcy, there are certain factors that may be considered before the government determines whether it will be granted to you. The answer still might surprise you, since you took the initiative to clear up your debt.
Additionally, if you hold a professional license or if you’re seeking to obtain a professional license, the code protects you as well: you cannot be denied the license on the basis that you filed for bankruptcy. However, there may be other standards that must be met to be granted the license or in order to maintain the license.
Learn More about Employment After Bankruptcy
Bankruptcy can affect different areas of your life, including your work. At the Law Offices of B. David Sisson, we can explain how filing for Chapter 7 or 13 may impact your future employment opportunities. Your financial future is the best tool you have, and we want to help you make the most of it by educating you on how the process works in United States courts.
Whether you plan to stay in your current job, look for better employment after bankruptcy, start your business, or look for a government job, we want you to feel prepared for the future.
To learn more about employment after bankruptcy, chapter 7, or chapter 13, schedule your consultation with the Law Offices of B. David Sisson now.