Bankruptcy is sometimes the best solution for those struggling with overwhelming debt. But tragically, many people decide not to file because they feel ashamed about their financial situations. They fear that other people will find out about their bankruptcy and view them as financially irresponsible.
There’s nothing wrong with filing for bankruptcy, but worrying about what other people will think is understandable.
A common question that people have about the filing process is, “Will a bankruptcy trustee contact my employer?” In most cases, there’s no reason why your employer will be made aware of your bankruptcy.
In this blog, we discuss situations in which your employer will be notified about your bankruptcy, and we also cover whether or not you can be legally fired for declaring bankruptcy.
Will My Employer Be Notified About My Bankruptcy?
If you file for Chapter 7 or Chapter 13 bankruptcy, your employer will usually not receive any sort of notification from the bankruptcy court or the U.S. Trustee Program. There are a few cases in which your employer could be notified, but the bankruptcy procedure does not include any sort of employer notification.
That being said, your bankruptcy is part of the public record. So if your employer goes searching for your bankruptcy records, they will be able to find out that you filed. Employers typically don’t search for this kind of information though. If they have an issue with your work performance, they’re far more likely to speak with you or reprimand you rather than look into whether or not you’ve declared bankruptcy.
Additionally, you’re under no obligation to inform your employer about your bankruptcy, so when wondering will a bankruptcy trustee contact my employer, in most cases, the answer is no.
Some professional licenses may require you to report your bankruptcy if you’re renewing or obtaining a new certification. But this is usually just the case for licenses in certain financial industries.
Can I Be Denied Employment Due to Bankruptcy?
If you’re interviewing for a new job, there are a few ways in which bankruptcy affects employment. If a potential employer runs a background check, they’ll discover your bankruptcy. And if they search your credit history, they’ll also likely spot your bankruptcy filing. A Chapter 7 bankruptcy remains on your credit history for ten years, and a Chapter 13 bankruptcy will stay on your credit history for seven years.
Private employers are allowed to deny employment due to bankruptcy, but in our experience they generally do not care. Public or government employers may not. Private employers may not discriminate against an employee because of their bankruptcy status, but when applying for a job, they may choose not to offer you a position because of the bankruptcy.
Cases in Which Your Employer Will Be Notified About Your Bankruptcy
Although employers are usually not notified when an employee files for bankruptcy, there are a few scenarios in which the employer will be notified.
Firstly, if your employer is also one of your creditors, they will receive a notification when you file. When filing for Chapter 7 or Chapter 13 bankruptcy, you are required to disclose all of your creditors, and your creditors will receive the official Notice of Bankruptcy Filing from the bankruptcy court clerk. If your employer is one of your creditors, they will definitely receive this notice.
Additionally, your employer may find out about your bankruptcy if creditors garnished your wages before you filed.
Creditors can garnish your wages if you fail to make payments. They can file a lawsuit against you in order to recover their money directly from your paycheck. Creditors will usually try several other methods to recover their money before garnishing your wages, but if these other methods fail, they may file a lawsuit.
If you fail to respond to the creditor’s lawsuit within a certain period, the judge will rule a default judgment against you. Once this happens, the creditor can notify your payroll department that part of your wages will go toward paying off your debts. Your employer or supervisor won’t necessarily know about your wage garnishment, but your payroll department will.
When you file for Chapter 7 or Chapter 13 bankruptcy, you receive an automatic stay that stops your wage garnishment. Your payroll department will then be notified that your wages will no longer be garnished. Depending on your organization, your employer or supervisor could find out about your bankruptcy because of your automatic stay. If this is the case, your employer was likely already aware of your financial situation to some degree because your wages were already garnished. If anything, they may be happy that you’re taking a step toward becoming debt free through bankruptcy.
The final situation in which your employer could be notified only involves Chapter 13 bankruptcy. When filing for Chapter 13, you make regular payments on a Chapter 13 repayment plan for three to five years to discharge your debts. If you fail to make a payment, your court-appointed trustee may require that you enter into a voluntary wage assignment where the payment comes from your paycheck. In our district, the Trustees use a company that draws Chapter 13 payments out of your check in the same way banks set up direct account deposits Your employer just thinks that you are having that part of your check deposited in an account. Once again, depending on your court district, your employer could find out about your bankruptcy through your wage garnishment.
Can I Be Fired for Filing Bankruptcy?
Fortunately, even if your employer finds out about your bankruptcy, they are not allowed to fire you. Title 11 of the United States Bankruptcy Code, Section 252, specifically states that an employer cannot terminate an employee because they filed for bankruptcy, and this includes both private and government employees. Firing an employee for declaring bankruptcy is considered discrimination.
Even though it’s against the law to terminate you for declaring bankruptcy, you could have difficulty advancing to a higher position within your company. This may be the case if your job involves managing money. Your employer has every right to consider how financially responsible you are before promoting you, so your financial situation could jeopardize your promotion.
Contact an Indiana Bankruptcy Attorney
If you’re considering filing for Chapter 7 or Chapter 13 bankruptcy, you may want to consider contacting bankruptcy attorneys to help you through the process. An attorney can answer all of your questions regarding bankruptcy and employment. For bankruptcy lawyers in Indiana, contact Sawin & Shea, LLC at 317-759-1483. We offer FREE attorney consultations to help you take the first step in becoming debt free.