Can I Be Denied a Job Because of Bankruptcy? It May Depend on Your Employer

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Posted by: John O'Connor

Bankruptcy and JobsLast updated Feb. 28, 2018.

If you have a job, need to file bankruptcy, and are worried about getting fired because of it, you probably shouldn’t be. The U.S. Bankruptcy Code prevents employers from firing you just because you have filed for bankruptcy. However, if you are a job seeker, need to file bankruptcy, and are worried about being denied a job, you might have cause for concern.

Under the current state of the law, a private employer can deny you a job if you are currently in or have filed for bankruptcy, whereas a public employer cannot. Section 525(a) of the Bankruptcy Code provides:

a governmental unit may not . . . deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title [Title 11] or a bankrupt or a debtor under the Bankruptcy Act

Notice that section 525(a) applies only to public employers. The behavior of private employers is governed by section 525(b), which prohibits discrimination based on bankruptcy, but does not contain the language of 525(a), which addresses denying employment to a debtor based on a bankruptcy filing. The bankruptcy code has this to say about discrimination by private employers:

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

Private Employers Denying a Job Based on Bankruptcy

Although a plain reading of 525(b) would seem to prevent denial of employment by private employers based on bankruptcy, the case law actually trends in the opposite direction. The great majority of cases have held that private employers are not subject to liability under Section 525(b) for a denial of employmentSee Rea v. Federated Investors, 627 F.3d 937 (3d Cir. 2010)

In Re Uplinger

In a recent case out of Virginia, In Re Uplinger, Chapter 7 debtor alleged that the U.S. Department of Immigration discriminated against her in job interviews because of her bankruptcy filing. In dismissing the case, the court noted that the debtor, Ms. Uplinger, had not applied for employment with the U.S. Department of Immigration, but rather with a government contractor known as U.S. Investigation Services. The court found that U.S. Investigation Services did not qualify as a public employer and therefore section 525(a)of the bankruptcy code did not apply.

The Court can find no support for the application of Section 525(a) to a governmental unit where the applicant applied for a job with a government contractor.

Instead, the court found that section 525(b) applied and that U.S. Investigation Services was a private employer permitted to deny Ms. Uplinger employment based on her bankruptcy filing. While it wasn’t clear from the record that Ms. Uplinger was denied a job solely because of her bankruptcy filing, representatives from U.S. Investigation Services did download a copy of her credit report prior to interviewing her.

Practical Considerations on Bankruptcy and Jobs

While this article places a spotlight on bankruptcy, as a practical matter, an employer’s hiring or firing decision will be based on numerous factors. Although employers may review a candidate’s credit score or financial history during a screening process, it is important to remember that other factors such as experience, education and personal demeanor will also play a large part in getting a job.

Just because an employer has the right to deny you a job because of a bankruptcy does not mean that an employer will deny you a job because of bankruptcy. While the bankruptcy code’s uniform prohibition on termination due to bankruptcy provides greater protection to those who are already employed, it can be difficult to prove that a firing was motivated by bankruptcy if there are other documented issues, such as a poor attendance record.

The bottom line is that the importance of bankruptcy to a potential employer will hinge on the type of job you’re seeking as well as the substance of your resume. A bankruptcy may be more important to an employer who is hiring you in a fiduciary role than it is to someone who is hiring you into a retail or service industry position.

Before you seek to avoid bankruptcy for fear of the affect it may have on your career, it is probably good idea to meet with a local bankruptcy attorney and discuss your situation in greater detail.