Will Bankruptcy Affect My Job or Future Employment?

In most situations, bankruptcy won't affect your current employment. However, bankruptcy could prevent you from getting a job in private industry.

By , Attorney University of the Pacific McGeorge School of Law
Updated 3/27/2024

If you plan to file for bankruptcy, you might be worried about the effect it could have on your employment. For instance, many people wonder:

  • Will an employer find out about a Chapter 7 or Chapter 13 bankruptcy?
  • Can an employer fire an employee who has filed for bankruptcy?
  • Is passing over a job applicant due to a bankruptcy filing legal?

Although your employer might learn about your bankruptcy case, rest assured that your bankruptcy won't affect your current employment in most situations. However, it might prevent you from getting a job in private industry later.

Can I Lose My Job If I File Chapter 7 Bankruptcy?

No employer can fire you solely because you filed for bankruptcy, and an employer can't use a bankruptcy filing as a reason to change other terms or conditions of your employment.

Specifically, your employer can't do the following:

  • reduce your salary
  • demote you, or
  • take away responsibilities.

If your employer fires you soon after learning of your bankruptcy and no other justifications exist, you might have a case against the employer for illegal discrimination. But bankruptcy won't shield you from other employment misconduct, so if you've been tardy, dishonest, or incompetent at your job, the fact that you filed for bankruptcy won't affect your termination.

Will the Bankruptcy Court Publish a Bankruptcy Filing?

Yes, all bankruptcy filings are public records, except for sensitive information, such as account numbers, Social Security numbers, and minor children's full names and birthdates.

But looking up a bankruptcy case on the court's Pacer system isn't a simple process. Unless your boss knows you filed, your employer will unlikely check your bankruptcy filing status.

Will the Bankruptcy Trustee Contact an Employer?

No, bankruptcy trustees don't routinely talk with a filer's employer, and the court doesn't send out a notice of the bankruptcy case to employers. However, employers can find out about bankruptcy filing in other ways. Keep reading to learn how.

Will My Employer Know If I File Chapter 13 Bankruptcy?

Again, employers rarely find out about a bankruptcy filing. But it can happen, and here's how.

  • You have a wage garnishment. A bankruptcy won't stop a wage garnishment unless you or your attorney tell your employer you filed. The good news? Most employers will welcome your efforts to take action to put your problems behind you.
  • You file for Chapter 13 payments. In some bankruptcy courts, the judge requires your employer to deduct your Chapter 13 bankruptcy payments from your wages and send the funds to the Chapter 13 trustee responsible for your case. Your employer will act like a collection agency to ensure you honor your Chapter 13 plan.
  • You owe your employer money. You must list all your debts when filling out your bankruptcy paperwork. For instance, if you're paying back a payroll overpayment, you'll have to include it, and your employer will get notice of your bankruptcy case.

Security Clearances, Bankruptcy, and Employment

Many jobs require a security clearance. Suppose you're a member of the armed forces or an employee of the CIA, FBI, another government agency, or a private company that contracts with the government. In that case, you might have a security clearance.

Do you risk losing your security clearance if you file for bankruptcy?

Probably not, and your bankruptcy might prove beneficial. According to credit counselors for the military and the CIA, people with a lot of debt can be targets of blackmail. By filing for bankruptcy, you substantially lower that risk, so filing works more in your favor more often than not.

How Does Bankruptcy Affect Job Applicants?

No federal, state, or local government agency can consider your bankruptcy when deciding whether to hire you. Private employers, however, aren't constrained by a similar rule, and some people find that having a bankruptcy filing in their past haunts them.

A bankruptcy filing causes problems mainly for those applying for jobs dealing with money, such as bookkeeping, accounting, and payroll. So, how does an employer find out you filed? Many private employers conduct credit checks on job applicants, so employers learn about bankruptcies from credit reports.

While an employer needs your permission to run a credit check, employers can refuse to hire you if you don't consent. If your employer asks for this authorization, consider speaking candidly about what the employer will find. Being honest and upfront might outweigh any adverse discoveries.

How Does Bankruptcy Affect a Job and Future Credit?

Although bankruptcy shouldn't affect your job in most situations, as discussed above, bankruptcy will impact your credit. Most filer's credit scores drop immediately after bankruptcy. Still, they usually improve with careful credit use within a couple of years. You can learn more about strategies for credit recovery after bankruptcy in Bankruptcy and Your Credit FAQ.

Need More Bankruptcy Help?

Did you know Nolo has made the law accessible for over fifty years? It's true, and we want to ensure you find what you need. Below, you'll find more articles explaining how bankruptcy works. And don't forget that our bankruptcy homepage is the best place to start if you have other questions!

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Helpful Bankruptcy Sites

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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.

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