Can Filing For Bankruptcy Lead To Job Loss?

Sometimes people suffering financial difficulties that can be helped by filing bankruptcy put off doing so for a variety of reasons. Possibly the most common reason is that they want to avoid having that negative mark on their credit reports. However, some people are concerned that filing bankruptcy may result in job loss. While it's illegal for employers to fire workers who file for chapter 7 or chapter 13 bankruptcy, filing a petition can affect your employment in a couple of ways.

Possible Loss of Security Clearance

If you require a security clearance at your place of employment, filing bankruptcy may affect your ability to obtain or maintain one. It's important to note that it isn't the bankruptcy itself that may cause issues, but the circumstances that led you to file a petition that may result in the denial or loss of a security clearance.

Since a bankruptcy filing is public record, it would be relatively easy for an employer doing a background check to uncover the case and pursue a more aggressive investigation into your financial situation as a result. If the employer feels that the circumstances of your bankruptcy filing make you a security risk, then they may take action against you as a result.

For instance, if you filed bankruptcy because of gambling debts and you didn't take steps to get your gambling addiction under control, your employer may deny or revoke your security clearance because they may feel you will rack up more debt in the future that may make you more susceptible to being bribed or taking an adverse action against the company to pay off your debts.

On the other hand, if you filed bankruptcy because you had a lot of credit card debt and you show you're rehabilitating your finances by taking money management classes, then your employer may feel the security risk is negligible.

May Be Denied Employment

While employers cannot discriminate against you or terminate your position if you file for bankruptcy while you are employed with the company, that protection doesn't extend to hiring decisions. Only government agencies are prohibited from factoring in a bankruptcy filing when considering applicants for jobs. Private companies can refuse to hire you if your credit doesn't meet their minimum requirements. In some cases, you may be at risk of dismissal if you are within a probationary period wherein the employer allowed you to work while waiting for a credit or background check to be completed.

However, the majority of companies in the U.S. do not take credit scores into account when making their hiring decisions. In fact, a 2012 survey found that 53 percent of employers don't bother doing employee credit checks. When credit checks were conducted, they were typically for positions where the applicants were handling financial information or sensitive data.

For the vast majority of people, filing bankruptcy won't have any effect on their jobs. If you are concerned that you may be adversely affected if you do take advantage of the protection offered by bankruptcy court, it's best to consult with an attorney about things you can do to protect yourself.

Contact a legal professional like Thomas A Blake for more information.