Bankruptcy is a scary part in a person’s life, and it’s a decision that many people use as their last resort to get out of a financial hole. While you may be able to get out of your debt, the bankruptcy will have a major impact on your credit score – almost a 200-point drop – and it may have an impact on your employment.

If you have a job, your current employer cannot legally fire you because of a bankruptcy. This law applies to all government and private employers, so your current job is safe. The terms of your employment cannot be changed because of bankruptcy either.

The employer cannot:

  • Punish you
  • Demote you
  • Reduce salary

However, if you have other issues against you, such as being incompetent or tardy to work often, you may be let go from your position or demoted. You cannot claim that your employer is discriminating against you if there are other valid reasons for you being fired or demoted.

“While the prohibition against termination based on bankruptcy exists, it may be difficult for workers to prove that their employers fired them because of their bankruptcy cases. Gathering evidence that an employer has engaged in a pattern of discriminatory conduct and terminations of employees who have filed for bankruptcy will help support a case,” explains Randolph Law Firm, P.C..

How Employers Learn of the Bankruptcy

If you don’t tell your employer about the bankruptcy, chances are they will not find out about it if it’s a Chapter 7 bankruptcy filing. But there are times when your employer will find out about the bankruptcy, and this often occurs from three main scenarios:

  1. You owe the employer money
  2. You have wage garnishment that stops because of the bankruptcy filing
  3. You have filed for Chapter 13 bankruptcy and are making payments

But if you’re a current employee, little can be done once the employer learns of the bankruptcy. You cannot face punishment or the risk of being fired, so the bankruptcy will do little to change your current career and position.

Applying for a Job After Bankruptcy

When you apply for a new job, and it’s within the period where the bankruptcy hasn’t fallen off of your credit report, it will be known to the employer that you have filed for bankruptcy in the past.

If a credit check is done on applicants, the employer may choose to not hire you.

This is especially the case in a field that may require you to handle money, such as accounting or payroll. If you happen to refuse a credit check, the employer is legally allowed to refuse your hiring as a result.

It’s best to be upfront and honest with the employer if you would rather not have the bankruptcy filing impact your potential for employment.

So, while your current employer cannot fire you because of a bankruptcy, some employees do claim that they have had a much harder time being hired after their bankruptcy filing. As time passes, the bankruptcy will have less of an impact on a person’s ability to get credit and find a job.