Will Filing for Bankruptcy Affect My Job?

It’s never easy to realize that you have more debt than you can pay back. But for some people, what’s even more upsetting is wondering, “Will filing for bankruptcy affect my job?”

Key Points

• In most cases, bankruptcy will have little to no impact on your job.
• Your employer may become aware of your bankruptcy under certain circumstances.
• Filing for bankruptcy can potentially impact your employment if you have a security clearance.

What Are the Chances That Filing for Bankruptcy Will Impact My Job?

For most people, filing for bankruptcy will have virtually no impact on their current job. However, certain individuals working under specific circumstances might see a minor impact on their current employment.

To be able to make the most informed decision possible, you need to have a firm understanding of all potential impacts that filing for bankruptcy may have on your life—both positive and negative. So while most people find that pursuing bankruptcy is a smart option for financial security, others may need to weigh possible job-related concerns.

How Would My Employer Find Out About My Bankruptcy?

There are a few ways that your employer may learn about your bankruptcy filing. For example, if your wages are being garnished, the only way that bankruptcy can put a stop to this process is if you or your lawyer inform your employer that you’ve filed.

If you file for Chapter 13, there is another opportunity for your employer to find out about your bankruptcy filing. Depending on the judge overseeing your case, your repayment plan might involve your employer deducting payments directly from your paycheck and sending them to the trustee overseeing your case. This is a method used to ensure that timely payments are made according to the repayment plan.

What Filing for Bankruptcy CAN’T Do to Your Job

Let’s start by addressing what your employer cannot do if you file for bankruptcy. Under most circumstances, your boss or employer can’t:

• Reduce your salary
• Demote you
• Take away work responsibilities
• Fire you

In other words, filing for bankruptcy should not affect your employment in any meaningful way—in most cases. There are some exceptions that are important to take note of.

2 Reasons Filing for Bankruptcy Could Affect Your Employment

Under specific circumstances, filing for either Chapter 7 or Chapter 13 bankruptcy could have a negative impact on your job. However, depending on your circumstances, we want to stress that these are not necessarily reasons to delay or avoid filing for bankruptcy.

Like with all legal matters, there are many moving parts and potential implications to consider when thinking about filing for bankruptcy. If any of the following reasons apply to your case, be sure to speak with an attorney before making a decision. You deserve to have access to all available information.

1. You Have a Security Clearance

The armed forces, certain government agencies, and private companies that hold contracts with the government often require certain employees to maintain security clearances. A security clearance grants an individual access to certain classified national security material relevant to their position and on a need-to-know basis.

While filing for bankruptcy won’t revoke your current security clearance, it can open you up to additional inquiries or investigations. The impact might not be immediate, either. Even if it’s been years since you filed for bankruptcy, it may raise questions when you go to renew your security clearance, a process that must be completed approximately once every five years.

So why is filing for bankruptcy considered a concern in this situation? An individual with access to sensitive and confidential information related to national security who is unable to satisfy their debts can be seen as a security risk or as someone who lacks judgment on important matters.

In other words, you could be viewed as someone willing to commit an illegal act (like trading classified information for money) in order to make ends meet.

But we know that it is not bad judgment that lands most people in debt.

Some of the most common driving forces of bankruptcy include:

• Medical bills
• Loss of employment
• Unexpected emergencies
• Divorce

Many of these factors are outside of people’s control. In other words, life happens. If you have a security clearance and believe you need to file for bankruptcy, we strongly encourage you to work closely with an attorney who is knowledgeable in all laws and regulations governing this form of debt relief.

Being proactive is a positive step toward preserving your security clearance.

2. You’re Applying for a New Job With a Private Employer

Private employers are barred from discriminating against employees and applicants based on a number of protected classes and statuses. However, bankruptcy does not fall under any class of protection in the hiring process. While you can’t be fired for filing for bankruptcy, it could potentially limit your employment opportunities in the future.

During the hiring process, many employers conduct background checks or credit checks on job applicants. A Chapter 7 filing will stay on your credit report for 10 years, while Chapter 13 stays on your report for seven years.

Having a bankruptcy on your credit report will not necessarily prevent you from finding a job with a private employer, especially if you are not applying for a position that deals with money. The biggest concern arises when you are applying for jobs that have to do with finances, like:

• Accounting
• Bookkeeping
• Payroll

Some employers may view bankruptcy as an indicator of poor financial management, even if that is not the case.

Should You File for Bankruptcy Even if It Will Affect Your Job?

Bankruptcy can help set you on a proven path toward financial stability and debt relief. The benefits of filing for bankruptcy are undeniable.

But, although limited, we must also acknowledge the potential negative impact that bankruptcy can sometimes have. Under specific circumstances, there is a small possibility that a previous bankruptcy filing can impact a security clearance or the ability to find a new job in a specific career field.

The decision to file for bankruptcy is deeply personal, which means that we can’t tell you whether filing is the right decision or not. What we can do, though, is ensure that you are equipped with all the knowledge necessary to decide what is best for you.

Get the Help You Need

If you decide that bankruptcy is the best choice for you, we’ll be there with you every step of the way. From the initial filing to the hearing of creditors and beyond, we’ll do everything in our power to limit the possibility that filing for bankruptcy will affect your job.

You can learn more about your legal options for addressing your debt during an initial consultation with a Baltimore bankruptcy lawyer from our law firm. Call or fill out our online form so we can get you scheduled.