The Bankruptcy Code prohibits discrimination in employment (and in the case of a government employer, discrimination in hiring) based solely on the filing of a bankruptcy, the inability to pay debts before or during bankruptcy, or the nonpayment of a debt that is dischargeable in bankruptcy. But the law does not prohibit an employer from consideration of arguably related factors, such as future financial responsibility or ability, if done in a nondiscriminatory manner.
The purpose of the Bankruptcy Code’s prohibition of discrimination by employers is to prevent interference with a bankruptcy debtor’s livelihood or fresh start. While it may seem contrary to protecting your ability to earn a living, any employer can legally and easily discover that you have filed for bankruptcy. A bankruptcy filing is a matter of public record and can be viewed by anyone. It may be published in the public notice sections of newspapers. It will appear on your credit report. Any employer can check your credit history before hiring you and periodically during your employment for performance or other reviews. Moreover, if your wages are being garnished by a creditor, your employer will be notified to stop the garnishment because you have filed bankruptcy. While the law prohibits any employer from terminating your employment or discriminating against you in your employment as a result of the bankruptcy, a private employer is not prohibited from refusing to hire you on that basis.
It can safely be said that most bankruptcy debtors who have jobs do not lose them when they file. But when it happens, discrimination in employment, and even more so discrimination in hiring, may be difficult to prove. Generally, there will be more than one real or plausible explanation for why a bankruptcy debtor was terminated or passed over for promotion or not selected for hire. Most employers are savvy enough not to say that bankruptcy was the only reason.
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