Can Bankruptcy Filing Affect Employment Prospects?

 

Yes, bankruptcy can affect your job or future employment prospects, but the impact is generally limited and depends on the type of job you’re seeking, the industry, and the policies of the employer. Below is a detailed breakdown of how bankruptcy can potentially affect your employment, both in the short term and long term:

1. Can Bankruptcy Be Used Against You in Employment Decisions?

In Most Cases, No

• Federal Law Protections: Under the U.S. Bankruptcy Code, it is illegal for most employers to discriminate against you for filing for bankruptcy. Specifically, Section 525 of the Bankruptcy Code prohibits employers from firing, refusing to hire, or otherwise discriminating against an employee or job applicant solely because they have filed for bankruptcy.
  • This law applies to private employers, government employers, and other types of employers.
  • However, while firing or refusing to hire you based on bankruptcy is illegal, the law does not prohibit employers from checking your credit report or taking action if they find other issues during the hiring process.

Exceptions:

• Certain Positions Involving Financial Responsibility: Employers in certain industries, particularly those related to financial services (such as banking, accounting, investment, or lending) may be allowed to consider your bankruptcy filing if the job involves handling large sums of money or fiduciary responsibility. For example, a financial institution might decide that your bankruptcy history is a risk for a position that involves managing funds, handling sensitive financial information, or having access to company assets.
• Government Jobs: Some government positions, especially those that require security clearances (such as positions in law enforcement, national security, or intelligence), may take your bankruptcy into account. Bankruptcy may raise questions about your financial responsibility or could be seen as a possible risk to your ability to handle sensitive or classified information. However, bankruptcy alone is not an automatic disqualifier for most federal jobs or other government positions.

2. Can Bankruptcy Appear on My Background Check?

• Yes, it can. Bankruptcy filings are part of the public record and will appear on your credit report for up to 10 years (for Chapter 7) or 7 years (for Chapter 13), which many employers may check as part of their background screening process.
• Employers and Credit Reports: Some employers, particularly those in financial services or those offering positions of trust, may request your credit report as part of their hiring process. Bankruptcy will appear as a negative mark on your credit report, and this could impact your chances for employment, particularly in jobs requiring financial responsibility.
  • Permission Required: For most private-sector jobs, an employer cannot pull your credit report without your written permission. If they do, they are required to notify you of the results if they decide not to hire you based on your credit history.
• What Employers See: Employers will typically see the fact that you filed for bankruptcy (for example, the bankruptcy case number, type of bankruptcy, and filing date) but they will not typically have access to all the details about your debts or the specific reasons for filing unless you disclose them.

3. How Bankruptcy Affects Specific Jobs
4. Financial or Accounting Jobs

• High Impact: If you’re applying for jobs in finance, banking, accounting, or any position that requires managing company finances, employers may view a bankruptcy filing as a red flag. They may be concerned that financial instability could affect your judgment or behavior, especially if your bankruptcy was due to mismanagement of debt.
  • Some employers may specifically ask about past bankruptcy filings or request a credit report as part of the hiring process.
  • However, if your bankruptcy was due to circumstances beyond your control (e.g., medical bills, divorce, job loss), it may be easier to explain and could be viewed less negatively.

1. Security-Cleared Positions

• National Security Jobs: For positions that require a security clearance (e.g., with government agencies like the FBI, CIA, or military), bankruptcy may be a concern. Bankruptcy could raise questions about your financial stability and whether you might be at risk of financial pressure or vulnerability to bribery.
  • However, bankruptcy does not automatically disqualify you from obtaining a security clearance. Instead, the government will evaluate your entire financial situation, including whether you’ve demonstrated an effort to resolve your financial issues and whether your bankruptcy is related to circumstances beyond your control.
  • A Chapter 13 repayment plan may be viewed more favorably because it shows you’re actively working to address your debts.

1. Sales and Customer-Facing Roles

• Sales Jobs: In customer-facing roles, particularly those in high-end sales or roles involving client relationships, employers may be concerned that your bankruptcy history could negatively impact your credibility or trustworthiness with clients. If you’re in a role where financial transactions or managing customer accounts is involved, bankruptcy might raise concerns, although it should not necessarily disqualify you.
  • However, many employers recognize that bankruptcy can happen due to circumstances like a medical emergency, job loss, or divorce, and they may be more understanding if you can demonstrate that you’ve taken responsibility for your finances.

1. Other Jobs

• For most jobs, bankruptcy will have little to no impact on your ability to find employment, especially if the position does not involve financial responsibility or trust. For example, positions in customer service, manual labor, creative fields, or sales (outside of financial products or services) are generally less affected by a bankruptcy filing.

4. Can Bankruptcy Impact Promotions or Security Clearances?

• Job Promotions: Your bankruptcy filing could impact a promotion if the new role involves greater financial responsibility or a higher level of security clearance. For example, a company that wants to promote you to a senior financial position or an executive role might review your bankruptcy filing as part of the decision-making process.
• Security Clearances: As mentioned earlier, bankruptcy can raise questions when applying for security clearances for government positions. However, bankruptcy itself will not automatically disqualify you from a clearance. The key factors that will be examined include:
  • Why you filed for bankruptcy (e.g., due to medical expenses, job loss, or financial mismanagement).
  • The steps you’ve taken to address your financial issues, such as following through on a repayment plan or taking steps to improve your financial habits.
  • Whether you are in good standing post-bankruptcy and demonstrate financial responsibility moving forward.

5. How to Address Bankruptcy During a Job Search or Interview

If your bankruptcy appears on your credit report or you’re asked about it in an interview, here’s how you can handle the situation:

• Be Honest: If asked about your bankruptcy, it’s important to be honest and upfront about it. Lying or hiding your bankruptcy can result in termination later if the employer discovers the truth.
• Explain the Circumstances: If your bankruptcy was due to circumstances beyond your control, such as medical bills, job loss, or divorce, explain that. Emphasize that it wasn’t a result of financial mismanagement and that you’ve taken steps to rebuild your credit and resolve your financial issues.
• Focus on What You’ve Learned: Highlight the lessons learned from your experience, such as better money management skills, financial responsibility, or working with credit counselors. Employers will often appreciate your growth and resilience in overcoming financial setbacks.
• Address How You’ve Moved Forward: Focus on how you’ve rebuilt your finances and maintained stability since your bankruptcy. Employers want to know that you can manage your finances responsibly moving forward.

6. Legal Protections in Employment

• Federal Protections: As mentioned, federal law prohibits discrimination based solely on bankruptcy status. This means an employer generally cannot refuse to hire you or fire you just because you filed for bankruptcy, though they may still use other factors like your credit history or job qualifications in their decision-making.
• State Protections: Some states have additional protections against employment discrimination for bankruptcy filers. For example, certain states may have laws that further limit the ability of an employer to use your bankruptcy filing as a reason to refuse to hire you or fire you.

Summary: How Bankruptcy Affects Employment

• For most jobs, bankruptcy will have little to no impact on your ability to find work, especially if the job does not involve financial responsibility.
• For jobs in finance, accounting, or roles requiring security clearance, bankruptcy could be more of an issue, especially if your bankruptcy reflects financial mismanagement or affects your credit.
• Employers generally cannot discriminate against you solely based on bankruptcy, but they may use your credit history as a factor, particularly for positions of trust or financial responsibility.
• Honesty and explaining the circumstances around your bankruptcy can help reduce any negative impact during the job search process.

If you’re concerned about how bankruptcy might affect your job prospects, consider discussing your situation with a career coach or employment attorney for personalized advice on how to navigate job interviews and employment applications after filing for bankruptcy.