September 22, 2019

Afraid that You Could Lose Your Job if You File Bankrutpcy? The Law Says “No,” but….

Last month, my friend and colleague, Charleston bankruptcy attorney Russ Demott published an interesting article on his web site entitled “Fired for Filing Bankrutcy? No way!” This article was written by Elyria, Ohio bankruptcy lawyer Bill Balena, who notes that the Bankruptcy Code specifically forbids “employee discrimination” based on a bankruptcy filing if:

  • You are, or have gone through a bankruptcy proceeding
  • You are insolvent either before filing a bankruptcy or while your petition is pending;
  • You have not paid a dischargeable debt

Let’s take a closer look at what the Code actually says.  Pay particular attention to the different language that applies to government employers vs. private employers.

Section 525 of the Bankruptcy Code contains the following language:

As to governmental units:

[with limited exceptions] a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.

As to private employers:

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.

As you can see, the restrictions on discrimination are not identical.

Specifically the limitation on governmental action against insolvent or bankrupt employees or job applicants includes the following prohibitions:

  • deny employment to
  • terminate the employment of
  • discriminate with respect to employment against

By contrast the limitations on private employers against insolvent or bankruptcy employees includes the following prohibitions:

  • terminate the employment of
  • discriminate with respect to employment against

Now I have not litigated this issue – but I think that a private employer could make a strong argument that the Bankruptcy Code does not forbid denying employment to an insolvent or bankruptcy individual who is applying for a job.

Further, as Mr. Balena points out, if you are applying for a job as an “at will” employee, a prospective employer does not have to explain why he is not hiring you – it can be for any reason.  I can’t imagine that too many employers would specifically put into writing that you are not being hired because of your credit issues.

In my view, within the context of private employment, Section 525 protections have much more relevance to an employee who already has a job as opposed to a job applicant.  Further, I think that Section 525 is somewhat of a toothless tiger in that few employers would specifically identify a bankruptcy as the sole reason for termination (note the language “solely because”).

As a practical matter, I cannot recall the last time I observed or even heard of a bankruptcy debtor facing termination or a refusal to hire because of a bankruptcy filing.  The sheer numbers of bankruptcy filings in the Northern District of Georgia, for example, are such that almost every company of any size has had one or more employees go through the bankruptcy process.  Still, I counsel my clients that Section 525 offers very little in the way of real protection and that there is some risk, even if it is small, that their bankruptcy filing could have a negative impact on employment.

About Jonathan

Jonathan Ginsberg represents honest, hardworking men and women in the Atlanta area who need personal bankruptcy protection. In practice for over 25 years, Jonathan teaches bankruptcy law and practice at legal continuing education seminars and he is a founding member of the Bankruptcy Law Network. Jonathan lives with his wife and children in Atlanta.

Comments

  1. I had someone ask me about that this week, whether or not they could be fired for filing bankruptcy. So this is something that consumers are worried about.

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