Bankruptcy myths: Will your employer know you’re bankrupt?

On Behalf of | Feb 10, 2022 | Chapter 13 Bankruptcy, Chapter 7 Bankruptcy

There are plenty of reasons why people decide against going into bankruptcy. They may feel that they don’t want to face the stigma of having a bankruptcy on their record, or they may want to try to repay as much as they can on their own, even as doing so harms their credit. Some people refuse to enter into bankruptcy because they’re worried that their employers will find out and that the fact they are bankrupt will influence their employment.

You should know that employers aren’t officially contacted about a bankruptcy when an employee files. Yes, a bankruptcy is a public file, but unless your employer is going through bankruptcy records to see if you have one, it probably won’t come up.

There are some times when employers could be notified of a bankruptcy, but only if you:

  • Need to stop a wage garnishment
  • Have a Chapter 13 payroll deduction order
  • Owe your employer money

So, realistically, most people won’t see their employer getting notified unless they have to ask to stop a wage garnishment or start a different payroll deduction. If you have your employer as a creditor, they’ll be notified of the bankruptcy as they participate in seeking a debt from you, which is a little different.

Can your employer fire you for going bankrupt?

It is against the law for your employer to terminate you because you went into bankruptcy, but in most cases, they won’t know unless you tell them anyway. Whether you work for the government or a private entity, they are not allowed to fire you because of the bankruptcy case. They can’t retaliate against you, either, because Title 11 of the United States Bankruptcy Code expressly prohibits it.

Will a bankruptcy prevent you from finding a new job?

If you’re looking for better work to get yourself into a different financial situation, then it could be frustrating to have a bankruptcy on your record. Arguably, it’s possible that your bankruptcy could impact future employment, particularly if you want to work in the financial sector, for example. New employers will see your bankruptcy if they ask for a credit report, but most won’t consider that bankruptcy an issue or bar to employment with them.