Employment and Bankruptcy’s Catch 22

Debtors Prison, The Clink Prison Museum, Banks...

Debtors Prison, The Clink Prison Museum, Bankside, London (Photo credit: nikoretro)

A debtor recently visited a bankruptcy forum website to ask these questions: “I know I need to file bankruptcy, but what about my future employment when I do? Will the law protect me?”

The debtor in question is a 26 year old female from Ohio who is currently attending college to become an accountant or financial adviser of some type. She is getting an accounting and financial degree.

The debtor bought a house she is currently underwater and wants to default on, has over $20,000 worth of student loans, has $14,000 worth of credit card debt, and has over $100,000 worth of medical bills. Her income is $1,000 monthly take home pay, she commutes 250 miles a day round trip, and she owns a car outright valued at $10,000. She also owns household items and personal belongings.

The debtor’s biggest concern is that she is afraid if she files for bankruptcy protection, she will have a hard time in getting employment opportunities in the future. If she doesn’t file, she is afraid she cannot continue to financially exist when the lawsuits start pouring in, so it is a catch 22 situation for the debtor. What are her alternatives?

Fortunately for most debtors, the law is pretty explicit towards discriminatory treatment. The law under title 11 U.S.C. 525 states: (b) No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt—

(1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;

(2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or

(3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.

Unfortunately, in some cases, the law makes exceptions for people who are applying for some sensitive type jobs where having filed for bankruptcy protection may be a security issue. Too, in Myers v. TooJay’s Management Corporation, a judge found that the statute (11 U.S.C. 525) doesn’t prohibit refusal to hire based on bankruptcy. So this particular statute has been left up to court precedence, and there are plenty of cases that support views in both directions of the law.

There is nothing in the bankruptcy law that prevents a prospective employer from looking into the credit background of their future employees, and a bankruptcy is put on your credit report for up to 10 years. In effect then, this fact could hurt the debtor’s chances for getting employment by some companies.

On the other hand, many companies see filing bankruptcy as a mature way of dealing with a bad financial situation. They realize that filing bankruptcy can happen through no fault of your own, and filing can be something you had to do in order to responsibly move on with your life.

If you feel like you are in a catch 22 situation like the debtor in our illustration, ask an experienced bankruptcy lawyer to help you decide whether to file or not.

Enhanced by Zemanta
The following two tabs change content below.