Crucial Question: Will My Employer Be Informed If I File Bankruptcy?

Wasson and ThornhillBankruptcy Advice

Not under Chapter 7; more likely under Chapter 13. But it’s illegal to be fired or discriminated against in your job for filing bankruptcy.

 

Chapter 7 “Straight Bankruptcy”

The majority of bankruptcies are filed under Chapter 7. These cases usually last less than four months. Normally only your creditors are informed about your case. There is no reason for your employer to be told about it, and in most situations employers are not informed and do not find out.

The most likely exception is if your wages are being garnished by a creditor. Your attorney may need to notify your employer’s payroll office about your bankruptcy to stop the garnishment, especially if the matter is very urgent. However the employer may not need to be told because the creditor itself must release the garnishment upon being informed about the bankruptcy filing. Regardless, your employer may still find out that is why the garnishment stopped.

But think about this practically. If your wages are being garnished, that means that your employer is already aware that a creditor has sued you, you could not pay, and so it has gotten a judgment against you. So your employer (or at least its payroll department) is already aware that you are having financial problems. You are putting your employer through the extra work of processing the garnishment every payday. Once you file bankruptcy, that will stop the wage garnishment, which means the employer does not have to mess with it any longer. And to the extent your employer is actually aware of your bankruptcy, it will see that you are taking responsible steps to put your finances in order.

Chapter 13 “Adjustment of Debts”

The three-to-five-year Chapter 13 option can be a tremendously good way to deal with a host of debt problems—saving a home from foreclosure, resolving serious income tax debts, paying off a vehicle for less, catching up on back child support, writing off non-support divorce debts, and more. At the heart of this type of bankruptcy is a Chapter 13 “plan” that you and your attorney propose and the bankruptcy judge approves, requiring you to pay a certain single amount each month to all of your creditors.

If you are employed, it’s standard practice in many parts of the country for the bankruptcy judge to require that your Chapter 13 payments be automatically deducted from your wages and sent to your “Chapter 13 trustee” for distribution to your creditors under the terms of your “plan.” This is done through a “wage order” or “income deduction order.” Note that this order is usually much easier for the employer to process than a garnishment because it tends to be the same every month, like an automatic deduction out of your paycheck. Also note that in some jurisdictions such “wage orders” are not imposed as long as you consistently make the plan payment on your own.

Federal Legal Protection for Employees

It is illegal for ANY employer—governmental or nongovernmental—to fire you because you filed for bankruptcy. An employer also cannot discriminate against you regarding other terms and conditions of employment, such as reducing your salary or demoting you, because of your bankruptcy.

The federal Bankruptcy Code specifically states that no “governmental unit” or “private employer” “may terminate the employment of, or discriminate with respect to employment against” “an individual who is or has been a debtor” in bankruptcy.

However, the Code makes clear that such termination or discrimination is only illegal if done“solely” because of the bankruptcy filing. So don’t go so far as to think that bankruptcy might prevent such action by your employer if it has other valid reasons to take the action—such as tardiness, dishonesty, or incompetence.