On the Job: How Bankruptcy Affects Your Employment Skip to main content

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On the Job: How Bankruptcy Affects Your Employment


You may be worried that bankruptcy will have a negative effect on your employment. How can you take back control of your financial life if, for example, you get fired and can't earn any money? Lots of people worry about this. You are not alone. This is a completely understandable fear. Fortunately, that's all it is...just a fear. The truth is that it is illegal for your employer to fire you or anyone else for filing bankruptcy.

Besides, you're a good employee, right? Why would an employer fire a good employee? That hurts the employer. Simply put, not only is it illegal, but it's just not in the employer's best interest. Generally, speaking, employers do not fire their good, dependable workers. Think about it.

The good news is that, more likely, filing bankruptcy will actually improve your status with your employer. Why? Because, once you don't have to worry about your bills or having bill collectors call your job, you can focus all of your energies on being your employer's star employee.

Keeping your job:

As mentioned, it is against the law for an employer to discriminate (meaning fire, demote, lower salary, etc.) against an employee because he or she has declared bankruptcy. Section 525 of the bankruptcy code  is very clear on this point. This section forbids employers from discriminating against employees on this basis.

As a practical matter, odds are that your employer will never even find out you filed bankruptcy. Why? Because, in most cases, the only way your employer will find out about your bankruptcy is if you slip and tell someone, and that someone tells your employer. Generally, the only other way for your employer to find out is if you file a Chapter 13 bankruptcy case and request that your Chapter 13 payments be made by payroll deduction. Paying your Chapter 13 payments by payroll deduction is a great way to make sure your payments get paid and paid on time, but it is not mandatory. Worried about what your employer might do? Then, decline the pay deduct and, instead, pay your payments directly.

Future employment:

What about future employment?

If you are applying for a job with the government, a bankruptcy on your record may not be considered as a factor in the hiring decision.

For other kinds of jobs, if the application asks if you have ever filed bankruptcy, we suggest you ignore the question. Don't lie, just don't answer the question. Why? The fact is that most job application forms are created by simply making a copy if someone else's form. The problem with simply copying somebody else's form is that it brings with it a lot of questions that make no sense in terms of the job you are applying for.

Often, one of those "makes no sense" questions is the question as to whether or not you ever filed bankruptcy. This happens all the time. But the truth is, in most situations, whether or not you ever filed a bankruptcy has nothing to do with your performance in the job you are applying for. So, don't answer it. If the question is not important, not answering it won't even be noticed.

If the question is important to the prospective employer, that employer will follow up with you about it. Then, you can "fess up" and decide whether you even want to work for a company that would judge you based on whether or not you ever filed bankruptcy.

Remember, filing bankruptcy is not a crime. It's a legal right all Americans have under the law to help deal with an impossible debt situation, many times one that they had no control over. Unlike stealing or something else that might actually relate to how trustworthy you are, filing bankruptcy is totally legal and, in most cases, completely unrelated to the performance of the job you are applying for.

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