How Can Bankruptcy Affect Your Job

When going through bankruptcy is not unusual to start worrying about how people will see you if they know you are bankrupt. One of the most common worries is how this situation could affect employment. Let me start by saying that your employer may find out about your bankruptcy but in most circumstances, it will have no impact whatsoever on your employment.

Frequently the perceived stigma relating to bankruptcy exists more in the eye of the one who is bankrupt, rather than those that come into contact with them. Individuals with one bankrupt in today’s economic climate are perceived more as victims than someone to blame.

Will Bankruptcy Cost Me My Job?

It is not permitted for any employer, whether it be in private industry or a government organization, to dismiss you simply because you are bankrupt. The employer may not alter the terms of your employment because of your bankruptcy. This means they cannot cut your pay, demote you, or reduce your responsibilities. Bankruptcy cannot be grounds for any of those things.

On the other hand, if you are dishonest, incompetent, or forever turning up late for work, your bankruptcy will not be used as a defence. If you are incompetent, then you are incompetent if you are bankrupt or not.

If you are fired just after your employer learns of your bankruptcy, and they have no other genuine reason for your dismissal, then you may have a case against them for illegal dismissal.

One exceptional situation that may cause difficulties is f you have a job where you are issued with a company credit card. In most circumstances, the card is cosigned by the employer, and this may present a problem with the card issuer. There are ways around this and although it may cause a slight inconvenience to the company, it should not be a reason to cost you your job.

How Will My Employer Find Out I Am Bankrupt?

Wage Garnishments

If during the period prior to bankruptcy you had a wage garnishment then when the employer is notified of your bankruptcy and told that the garnishment must consequently cease, your employer will find out about your bankruptcy.

Chapter 13 Payments

In some jurisdictions, when a chapter 13 bankruptcy is filed, the judge may order that your Chapter 13 payments are deducted from your wages directly, so they can be sent to the bankruptcy court by your employer. Your employer then becomes part of the bankruptcy process and will be fully aware of your status.

Debts To Your Employer

When you file for bankruptcy, you must list all debts at that time. If you have been previously overpaid by an employer or have any other debt to the employer, you must list this in your bankruptcy paperwork. Your employer will then be automatically notified about the case.

Security Clearances & Bankruptcy

Some categories of employees have a security clearance as part of their job. These obviously include members of the security services and the armed forces. Other government departments may also have security clearances, and some contractors that do business with them may also come under the system. People who need security clearance for their job will often wonder “Can bankruptcy affect my job.”

Generally, people who already hold a security clearance and who have no other black marks against them do not lose their clearances because of bankruptcy. In nearly all cases, security clearances are not impacted by bankruptcy.

According to credit counsellors working for the government, if a person has financial problems and a lot of debt, then they are in a position to be blackmailed. When an individual files for bankruptcy they get rid of those debts and are a far better security risk. So, it could be said that in some cases bankruptcy actually improves your security standing.

According to one lawyer, he has had more than one client who was told by his government employer that they should declare bankruptcy to resolve problems with security clearances. Looking at this in more detail, the Department of defence has forms that relate to security concerns.

Paragraph 20 One of these in paragraph 20 (D) states that the individual acted in good faith to repay creditors or resolve debts. of Guideline F in the DOD directive lays out circumstances that would mitigate security concerns. That paragraph is about filing for chapters 7 and 13 bankruptcies and once again portrays filing as a good thing that improves your security status over ignoring debts.

Will Bankruptcy Destroy My Job Application Changes?

If your prospective employer does a credit check prior to employing you, they will see any bankruptcy in the last ten years. If you feel a credit check is likely, then it may be better to mention the bankruptcy to them, explaining the background to your filing. This will come over better than if you are attempting to hide it from them.

Quite frankly, whether or not you are bankrupt has little relevance to your ability to do any job and to use bankruptcy as an excuse for not employing someone is short-sighted.

If your prospective employer runs a credit check and they see lots of bad credit on the report and see that you have apparently done nothing about it, that may worry them. However, if they see that you took action to resolve the problem, it may well come over better for you. You may well seem the better option.

Final Thoughts

If as an employer I come across a candidate who is honest about bankruptcy, has a rational explanation about how it occurred and demonstrated that they took action to resolve their financial difficulties, I would see them in a far better light than another applicant who shows up in a credit check as having long term financial difficulties and a record of defaults. A candidate who is not dealing with the issue.

There are many more factors that will decide if an individual will be a good employee than some private financial problem they had in the past. A problem which they acknowledged and dealt with.

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