Does Bankruptcy Affect My Employment Opportunities?

DOES BANKRUPTCY AFFECT MY EMPLOYMENT OPPORTUNITIES?

Published on November 1, 2012 by: Ian M. Falcone

I am asked this question more and more these days.  In a market with fewer job opportunities and numerous applicants, no one wants to hurt their chances of getting a job.  So, can an employer legally discriminate against you if you have filed bankruptcy?  The answer differs depending on whether the employer is a private (non-government) or public (government) company. 

Not surprisingly, there are more restrictions placed on government employers.  Section 525(a) of the Bankruptcy Code states:

... a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person ... solely because such bankrupt or debtor is or has been a debtor under this title ...

                                 See Section 525 of the Bankruptcy Code

There are two important aspects of this Code Section.  First, the phrase “deny employment to” clearly prevents a government employer from refusing to hire an applicant because he or she has filed a bankruptcy case in the past.  More importantly, a governmental unit may not “terminate the employment” of a person that has previously filed for bankruptcy protection.
Private employers are very different.  Section 525(b), applicable to non-governmental employers states as follows:

(b) No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt--

(1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;

(2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or

(3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.

Congress had originally considered including the same prohibitions for private employers as the Code includes for governmental employers.  See Bankruptcy Commission, S. 236, 94th Cong., 1st Sess. § 4-508 (1975)  However, that language was not included.  As a result, although private employers cannot “terminate the employment” of an individual that has filed a bankruptcy case, it does appear that they can deny an applicant a position based on a bankruptcy filing.

This situation was recently addressed by the Court of Appeals for the 11^th Circuit (serving FL, GA and AL).  In Myers v. Toojay’s Mgmt. Corp., 640 F. 3d 1278 (11^th Cir., 2011) (click here for a .pdf of the opinion) a job applicant was offered a position and given a two-day “on-the-job” evaluation.  During that two-day period, the employer conducted a background check and discovered the applicant’s bankruptcy filing.  The job offer was rescinded (although the employee was paid for the two days of “on-the-job” evaluation).  The Court examined the Code and determined that the employers actions were proper. 

It is important to note that both Section 525(a) and Section 525(b) include the language “solely because” in its prohibitions.  Thus, an employer, private or public, may be able to prohibit hiring, and in the case of governmental employers, terminate employees if there are reasons to discriminate other than the bankruptcy filing (An example might be a Chief Financial Officer who files a bankruptcy case.  A CFO’s position is to be responsible for the financial health of a company.  It may be inappropriate to allow that individual to hold such a trusted position) .

In summary, no employer can terminate your employment solely because you filed a bankruptcy case.  However, a private employer may choose not to hire you because you filed for bankruptcy protection.  Of course, that same employer could reach the same conclusion based on your bad credit alone.