Many people considering bankruptcy are concerned about the impact filing might have on their future employment prospects. This may be an especially serious concern if job loss triggered the financial problems they are looking to resolve. The good news is that, in California, the answer is usually no. But, there are exceptions.
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Governmental Employers and Bankruptcy
When it comes to most public employers, the rules about bankruptcy and hiring are straightforward. Section 525 of the U.S. Bankruptcy Code specifically states that a governmental unit cannot deny employment to or discriminate against someone solely because:
- That person is or has been a debtor in a bankruptcy case,
- That person was insolvent prior to a bankruptcy filing or during the bankruptcy case, or
- That person failed to pay a debt that is dischargeable in the bankruptcy case
In other words, with limited exceptions spelled out in the law, the U.S. Bankruptcy Code prevents a governmental employer from declining to hire someone because that person has filed bankruptcy in the past or is currently in bankruptcy.
Federal law doesn’t extend this protection to those applying for jobs with private employers. However, it’s worth noting that the U.S. Bankruptcy Code treats those who are already employed a bit differently than those who are seeking new employment, and some protections do extend to those working in the private sector.
California Law on Pre-Employment Credit Checks
While federal law doesn’t provide protection for bankruptcy filers who are applying for new employment in the private sector, California applicants have a bit of an advantage compared with those in many other states.
That’s because California state law puts strict restrictions on the use of credit reports in hiring decisions. 10 years ago, the state amended the Consumer Credit Reporting Agencies Act (CCRAA) to limit the use of credit reports in employment decisions. In fact, the law categorically says that an employer “shall not use a consumer credit report for employment purposes” unless the job in question falls into one of the specifically listed exceptions.
The exceptions–unsurprisingly–are mostly related to positions in which the employee will have access to large sums of money or to private information, or where the employee will be fulfilling a law enforcement role.
These positions include:
- Employment with the state Department of Justice or as a sworn law enforcement officer
- Most positions that routinely allow access to other people’s Social Security numbers, birth dates, and bank account or credit card information
- Situations in which the law requires the applicant to disclose or the employer to obtain the information contained in the report
- Positions in which the employee would have authority to make financial transfers on behalf of the employer or enter into financial contracts, or who would be a named signatory on the employer’s credit or bank accounts
- Positions in which the employee would have access to certain confidential or proprietary economic information
- Roles in which the employee would have regular access to $10,000 or more in cash during the work day
The broadest exception is for managerial employees.
However, it’s important to note that the list above sets forth the situations in which a California employer is legally allowed to use the information on an applicant’s credit report in making employment decisions. This doesn’t necessarily mean that every employer who is entitled to obtain and consider credit reports will do so. And, those employers who do check may or may not be concerned about a bankruptcy filing. In other words, some employers hiring for some of the positions above may never look at your credit report, or may not consider a bankruptcy filing in making hiring decisions.
Bankruptcy Won’t Stay on Your Credit Report Forever
A Chapter 7 bankruptcy filing can stay on your credit report for 10 years, and a Chapter 13 filing for seven years. Once that time has passed, a prospective employer checking your credit report won’t see that you filed for bankruptcy.
An expert tip from Erik
For many employers who do review your credit report, the importance of a bankruptcy filing may diminish with time. So, even if the bankruptcy is still appearing on your credit report, more current positive information may outweigh it in a hiring decision.
The Bottom Line on Bankruptcy and Employment
If you’re already employed, most employers cannot terminate your employment solely because you filed bankruptcy. That limitation applies to both public and private employers. When it comes to hiring decisions, federal law prohibits most public employers from declining to hire someone because they have filed for bankruptcy in the past or are currently in bankruptcy.
While federal law doesn’t extend that protection to those applying to private employers, California law fills that gap. In most circumstances, a California employer cannot legally use your credit report to make hiring decisions.
If you have specific concerns because of the type of work you do or the type of work you hope to pursue in the future, an experienced Los Angeles bankruptcy attorney can provide more information about whether and how a bankruptcy filing might impact a specific type of employment.