Does Bankruptcy Impact Job Applications, Employment, and Background Checks?

When your financial situation takes a turn and bankruptcy is the only viable way forward, you’ll likely have lots of swirling questions and concerns to contend with. One of these might be whether your current and future employment opportunities will be affected by a chapter 7 or chapter 13 bankruptcy filing. It’s a valid concern, and it’s always a good idea to take a comprehensive approach to your current and future financial and employment situation. With some steady legal advice and a trusted bankruptcy attorney by your side, you can make it through successfully.

How Bankruptcy Affects You Now

Before filing for a chapter 7 or chapter 13 bankruptcy, you could be concerned about how it will impact your employability. We’re happy to report that, in general, bankruptcy shouldn’t negatively affect your current employment situation. 

If you’ve filed for a chapter 7 bankruptcy, then it’s likely that your employer won’t even be aware of your financial situation. Bankruptcies are public record, sure, but if an employer doesn’t have a reason to go looking, then there’s no way they would casually find out. Now if you’ve filed for a chapter 13 bankruptcy, there is an off chance that your employer might learn about it, since it’s likely that the Court will require automatic payments be deducted from your wages in order to repay creditors. So there’s always a possibility that someone from HR or payroll might clue them in. This could be especially true if you work for a small, tight-knit company.

Thankfully though, one thing is certain: no matter the size, type, or sector of the business, no employer has the right to discriminate against you in any way due to their knowledge of your bankruptcy case. This is a legally established standard, per the official U.S. bankruptcy code.

Actions that would indicate discrimination could include:

• Demotion
• Pay cut
• Schedule change
• Hour reduction
• Removal of responsibilities
• Termination

If your employer takes any of these actions without being prompted by some action on your part–i.e. disrespect, tardiness, dishonesty, or incompetence–then it is worth discussing the situation with a trusted bankruptcy attorney. You could have a valid case against your employer if there is clearly biased or discriminatory behavior at play on their end. Bankruptcy is not a cop-out–it’s a responsible way to tackle otherwise insurmountable debt. Your decision should not be met with any harsh backlash.

If you do have a reasonable suspicion that your employer is looking to terminate your employment after learning about your bankruptcy, do all you can to make it hard for them to find just cause. Remain respectful, dutiful, and a model employee. However, if you do act appropriately and still suffer job loss, it is again worthwhile to take up the matter with an experienced bankruptcy attorney.

How Bankruptcy Affects Future Job Opportunities

Federal, local, and state employers are prohibited from any type of hiring discrimination based on your financial situation, be it a recent bankruptcy filing or any other evidence of debt that surfaces in your background check or credit history. That said, not everyone works for a governmental office, and this clear-cut rule does not apply to private companies. 

While we hope that private sector employers would give folks the benefit of the doubt and seek to uplift their communities, we can’t predict what they might do. Perhaps they’ve hired someone in a similar situation in the past and their business suffered because of it. Regardless, if a potential employer learns of your bankruptcy and chooses not to hire you for a position that deals with responsible management of assets or access to sensitive financial information–i.e. accounting or payroll, handling cash or valuable merchandise–then that is ultimately their decision to make. They can also legally refuse to hire you if you won’t give permission for a credit history or background check.

In most cases, bankruptcy will not affect your current employment or your future dream job. That said, we cannot vouch for every employer out there. If it does come up, definitely be honest about what happened––provide reasons, not excuses, and show how you overcame the difficulty. Oftentimes your dedication and proven responsibility will actually portray you in a good light. Being honest and providing a relevant context can take your story from data on a report to a relatable situation that an employer can better understand. After all, many fellow Americans and Ohioans have been in your same position.

Your best bet is to work with an experienced bankruptcy attorney, who can field any and all questions regarding bankruptcy and employment and help you to work through situations that might arise. And whatever happens, remember that after 7-10 years, depending on the type of bankruptcy you filed, your information will fall off of your credit report, yielding no results to employers or others you authorize to run a credit check.

Special Situations Surrounding Employment and Bankruptcy

Both governmental agencies and some private companies require that employees have some form of security clearance. At first thought, you might be concerned that if you work in these areas or hope to someday, that a bankruptcy will stain your record. But sometimes, the opposite is true. 

Because excessive debt can lead an individual to be more likely to make compromises or fall victim to blackmail, the fact that you have taken debt head-on via a bankruptcy filing can actually be seen as a protection and a good mark on your character. This is just one case in which your initiative to get a handle on your debt can serve you well in the job market. At the same time, it’s often the root cause of your perceived financial irresponsibility that might come into play, not the bankruptcy itself. Financial trouble due to medical bills or a divorce will always be seen in a more understanding light than other, seemingly frivolous ways to rack up debt. While in general this sort of information isn’t divulged to potential employers, positions that require a security clearance will likely have access to this data.

How Bankruptcy Affects A Background Check

Oftentimes, a potential employer will want to run various types of background checks on an applicant they’re considering for employment. They typically do this to ensure that they’re building a safe and trustworthy workforce. Employers may also be concerned about protecting company assets, minimizing their liability, and ensuring that a candidate truly has the qualifications they need. For employees who will be working with or around children or other vulnerable populations, a background check is vital for safety and well-being. But the question remains–will a bankruptcy show up on a background check?

The answer is, it really depends on the type of background check that an employer runs. Bankruptcy is a protection provided by the government, it’s not a crime, so it will never show up on a criminal background check. Because bankruptcies are filed in a specialized federal court, which is separate from civil court, they will not appear in civil court background checks. Since bankruptcy is a federal provision filed in federal court, federal records checks would turn up a bankruptcy filing if it was within the last 7-10 years. The same is true for credit history checks and credit reports–they will be visible on your report for 7-10 years.

The long and short of it is that bankruptcies are public record, but they're not criminal. So they will only show up in certain background checks that a potential employer might require, but not all. And depending on the scope of the search and type of background check done, a bankruptcy may not show up at all. You may be tempted to refuse consent to a background check, and that’s well within your rights, but it may rub a potential employer the wrong way and harm your chances of securing a job. Consult with your trusted Ohio bankruptcy lawyer to determine the best course of action.

Partner With a Local Ohio Bankruptcy Lawyer

Navigating the waters of a bankruptcy can feel daunting, especially when you’re also worried about keeping or securing employment. Maintaining your current position could be vital to helping you overcome debt. If you’re at a crossroads and not sure how to turn, know that putting in effort and sacrificing to achieve a more secure financial situation is always worth it. And know too that you’ll always have an advocate in your friends at Hausen Law. 

If you need advice and answers to your burning bankruptcy questions, get in touch with our trusted chapter 7 bankruptcy lawyers. James F. Hausen has used his well-honed skills to handle over 2,000 cases in his efforts to provide legal counsel to all of Northeast Ohio, including the Akron, Canton, Cleveland, Columbus, Dayton, Cincinnati and Youngstown communities. Contact us today to set up a free consultation and learn more about your bankruptcy options and employment rights and to inquire about our credit counseling and credit repair programs.