Can Bankruptcy Affect Your Job: Employer Restrictions in Michigan
When people get themselves in challenging economic situations, filing bankruptcy might be the best option to provide debt relief and peace of mind. However, at the same time, doing so could impact your future job prospects in the state of Michigan.
Bankruptcy laws do have protections in place for debtors who have filed bankruptcy, shielding them from discrimination from their current employer. For instance, employers are barred from firing an employee based solely on a bankruptcy filing.
At the same time, it could affect your future job prospects, especially in the private sector. While all local, state and federal government agencies are prohibited from using bankruptcies as a hiring criteria, the same protections are not in place for private employers.
Some private employers conduct credit checks on prospective employees and may decide not to hire someone if they have a bankruptcy in their history. And individuals who refuse to permit a credit check may also be removed from consideration for certain jobs.
While most employers will only consider a credit check in relation to the job that you’re applying for, there aren’t specific protections in place in the private sector.
Employer Restrictions on Bankruptcy
People who have filed for bankruptcy do enjoy some federal protections against discrimination in the workplace. It’s laid out in the U.S. Bankruptcy Code that employers cannot discriminate against an employee who has filed bankruptcy.
This employment discrimination clause protects debtors from losing their job solely based on the fact that they filed bankruptcy. This applies to employers in both the public and private sector.
In other words, if you are already employed, you cannot be fired simply due to your bankruptcy filing.
How Bankruptcy Can Affect Job Prospects
Where a bankruptcy may come into play is with future job prospects, especially if you’re applying to a company in the private sector.
While there’s nothing that forces you to disclose to prospective employers that you filed for bankruptcy, there are some ways that they might discover it.
For instance, some employers perform credit checks, which could reveal that you filed for bankruptcy. Bankruptcy filings are matters of public record, so employers wouldn’t be doing anything illegal if they discovered you filed for bankruptcy.
Private companies are allowed to consider bankruptcy cases when they are making their hiring decisions, which provides you no protections from future job prospects in the sector.
If you’re applying to a public-sector job, you will enjoy some protections. That’s because no government agency is allowed to consider previous bankruptcy filings in their hiring decisions.
Security Clearances and Bankruptcy
There are obviously many financial benefits of filing for bankruptcy if you find yourself in over your head with debt. From an employment perspective, it could provide significant benefits for you as well, depending on your job status.
For instance, bankruptcy can actually substantially lower your risk of losing a security clearance. Credit counselors who work for the CIA and the military have said that people who have a lot of debt can become easy targets of blackmail, which could compromise their position with access to sensitive government information.
As such, when you file for bankruptcy and rid yourself of mounds of debt, you could actually be improving your career position at the same time. Not only can bankruptcy help to improve your personal financial concerns, it can also alleviate potential concerns your employer might have if you have certain security clearances — or need them to perform your duties.
Discrimination Laws and Bankruptcy
There are many protections in place for people who file for bankruptcy. As it relates to discrimination at the workplace, federal law bans all private-sector employers and government agencies from discriminating against individuals solely based on the fact that they have filed for bankruptcy.
These protections are provided under Section 525 of the U.S. Bankruptcy Code.
It states that all government agencies — whether on the local, state or federal level — from firing, refusing to hire or discriminating against individuals who file for bankruptcy.
It also prohibits all employers in the private sector from firing individuals because they have filed for bankruptcy. However, the employment protections for individuals in the private sector basically end there.
Keep in mind that your current employer may never find out about your bankruptcy filing, and you are not required to notify them.
If you file Chapter 7 bankruptcy, employers are not required to be notified by the courts. Only direct stakeholders such as creditors and co-signors are automatically notified.
If you file Chapter 13 bankruptcy, though, your employer might eventually receive notice. This is because the bankruptcy court requires a wage garnishment as a method of repayment for your restructuring plan. However, if you can foresee this being an issue that can negatively impact your employment, then there are options to avoid the wage garnishment to repay your Chapter 13 bankruptcy.
It’s also important to note that the Bankruptcy Code does not prevent private-sector employers from taking your credit history into consideration for hiring decisions, and this includes previous bankruptcy filings.
While employers need your permission to run a credit check, if you refuse to give that consent, you can also be denied employment based on that. That’s why it’s typically best to be upfront and honest about your situation.
What to Do if You Experience Discrimination
Despite the protections that are in place thanks to the U.S. Bankruptcy Code, there are still instances in which some people experience employment discrimination.
If you believe that your current employer, or a prospective employer, discriminated against you because of your bankruptcy filing, you need to first make sure that they didn’t have another reason why they terminated you or didn’t hire you.
This can be extremely challenging for you to prove, unfortunately. Many employers don’t need a real reason for terminating an employee, and even if they do, they could build a case against you in other ways.
That’s why it’s important to consult with an employment law attorney if you believe you have been wrongfully discriminated against. They will be able to help determine whether there is sufficient evidence of wrongdoing, and what options you might be able to explore for filing a wrongful termination claim.
At Babi Legal Group, we have more than 15 years of experience in bankruptcy, debt collection and debt settlement law that we can put to work for you if you believe you’ve been discriminated against by a current or prospective employer.
To learn more, please contact us today.