Bankruptcy’s Effect on Employment

Security Clearances and Employment

If you’ve considered filing for bankruptcy, you may be concerned about how doing so would affect your employment. This is something people are commonly concerned about. While the simple answer here is that your current employment won’t be affected, there are some indirect consequences you’ll want to know about. For instance, your filing may prevent you from obtaining a job in the private sector later on. Therefore it’s wise to be concerned and take time to think things through carefully here.

Job Security
You can’t be fired by either a government or private employer simply because you filed. Your employer also can’t use this as a reason to change any of your employment’s other terms or conditions. This means that they can’t reduce your salary, demote you, or take away any of your responsibilities. However, if there are other valid reasons for your employer to take these actions (e.g., tardiness, dishonesty, incompetence) you won’t be protected by filing bankruptcy.

Wage Garnishments
Sometimes the court will attach a wage garnishment once you’ve declared yourself bankrupt. Usually, this happens when you file for Chapter 13. When this happens your employer will be informed about it since the judge will most likely order the payments to be automatically deducted from your wages and sent to the court. In this way, your employer is coerced into acting as a collection agency to ensure that you honor your bankruptcy plan.

Your employer must then follow the court’s orders until the court deems they should no longer be in effect. Typically, employers look positively upon your declaration because they’ll see that you’re taking affirmative steps to put your financial problems and stress behind you once and for all.

Security Clearances and Employment
There are a lot of jobs (e.g. armed forces, CIAFBI, government agency, a private company that contracts with the government) that require you to have a security clearance. If you hold such a job you may be worried that you’ll lose your security clearance if you file for bankruptcy. Whether or not you do will depend upon which of these positions you hold. For instance, if you’re a member of the military or the CIA and have a lot of debt your employer may believe that you pose a high risk of being blackmailed. Once you file and start working on getting rid of your debts you’ll pose much less of a risk. In this case, your filing will work in your favor rather than to your detriment.

How Job Applications are Affected
Public entities (e.g., federal, state, or local government agencies) can’t base their decision regarding hiring you on the fact that you’ve filed for bankruptcy. However, private employers aren’t held to this rule which is why some people have had their filing come back to haunt them.

Most private employers will conduct a credit check when you apply for a job. This is how they’ll learn that you’ve gone bankrupt. Your filing will mainly cause problems if you’re applying for a job that requires you to handle money (e.g., bookkeeping, accounting, payroll).

While it’s up to you to give employers your permission before they can conduct a credit check, they can decide not to hire you if you don’t consent. If you’re asked for this permission you should speak to them candidly about what they’ll find. When you’re honest upfront the negative effects may be outweighed by such honesty.

This is just one of the many considerations you’ll want to spend time thinking about before filing bankruptcy. At Weller Legal Group in Tampa, FL we understand that this has a major impact on your life so it shouldn’t be taken lightly. For help deciding whether this is the best route for you to take, contact us today.


Picture Credit: Crello