How Will Bankruptcy Affect Me in the Workplace?

Filing for bankruptcy can be a life-altering decision for anyone. However, beyond the financial implications, there's a domain that often gets overlooked—the workplace.  

Bankruptcy comes with a stigma that can cause individuals to feel embarrassed, ashamed, or insecure. This leads to concerns about how it will affect their current job and future employment opportunities.  

But you should know that filing for bankruptcy generally won't have negative impacts on your employment. In fact, there are legal protections in place to safeguard employees from any discriminatory actions by their employers.  

Read on to understand the ins and outs of bankruptcy's impact on the workplace and how you can navigate it with confidence. 

The Basics of Bankruptcy 

Bankruptcy is a legal proceeding that provides a fresh start to individuals and companies overwhelmed by debt, as stipulated by federal law. It essentially allows debtors to either discharge some debts entirely or create a repayment plan. 

There are two primary types of bankruptcy that individuals often consider: Chapter 7 and Chapter 13. Chapter 7 bankruptcy, known as liquidation bankruptcy, involves the sale of certain assets to pay off debts. In contrast, Chapter 13 bankruptcy allows individuals to keep their assets but requires them to make scheduled payments to creditors over a period of three to five years. 

General Implications of Bankruptcy 

Bankruptcy can have various financial ramifications, including but not limited to: 

• A negative impact on your credit score and ability to obtain loans. 

• The potential loss of property, depending on the chapter you file under. 

• The requirement to participate in credit counseling. 

Bankruptcy and Your Current Job 

Employees who file for bankruptcy have legal protections from employer discrimination. This means that your employer cannot fire, demote, or discriminate against you solely because you filed for bankruptcy. 

Your current employer, oftentimes, won't even need to know about your bankruptcy. However, if you have a garnishment order against your wages and your employer is notified, they may take action to comply with the order. 

Bankruptcy and Future Employment 

The effects of bankruptcy on future job prospects can be unsettling. While there's no law explicitly prohibiting employers from considering bankruptcy in hiring decisions, it's still good to know your rights and how you can address them in job applications or interviews. 

Job Applications and Background Checks 

When applying for jobs, employers may conduct background checks that include credit history. This could potentially put you at a disadvantage, especially if the position involves handling finances or trust. In such cases, being transparent about your bankruptcy and explaining the circumstances can help alleviate any concerns. 

Certain employers may view bankruptcy as a red flag during the application process, particularly in fields where financial management and fiduciary responsibility are paramount. 

Tips for Addressing Bankruptcy in Job Interviews 

If asked about bankruptcy during an interview, provide a clear and concise explanation. It can help diffuse concerns and showcase your commitment to a fresh start.  

Also, if the person interviewing you responds negatively to your honesty, that's probably a strong sign that you wouldn't want to work for them in the first place. 

Post-Bankruptcy Job Searching  

If you're concerned about your job prospects post-bankruptcy, perhaps start by considering roles that don't require financial responsibilities.  

But then again, because you've been through bankruptcy, you'll likely have a fresh perspective and a renewed outlook. Say your experience with overcoming debt inspired you to pursue a new career track in financial planning or advising; your future clients may find your personal experience relatable and trust your advice more than someone who hasn't ever endured financial hardships. 

Many bankruptcy lawyers became attorneys with that exact motivation, as they have the knowledge and expertise to help others navigate this financial crisis. 

Bankruptcy and Professional Licenses 

Bankruptcy can threaten the standing of your professional licenses and certifications. Certain industries and states might have specific rules regarding the financial status of those they license. 

For professionals in fields such as law, healthcare, finance, and even construction, maintaining an upstanding financial reputation is often a precondition for licensure. When you file for bankruptcy, regulatory bodies or licensing boards may review your financial health to determine if it affects your professional reliability or integrity.  

While bankruptcy itself is not a legitimate ground for denying or revoking a license in most industries, the circumstances leading to bankruptcy can trigger a closer examination. For instance, if financial mismanagement, fraud, or unethical behavior contributed to the need for bankruptcy, this could be a red flag for boards overseeing professional standards. 

In some cases, you may be required to notify your licensing board of a bankruptcy filing proactively. It’s important to understand the specific regulations of your professional industry and state because they can vary significantly.  

Transparency with your licensing board can sometimes mitigate potential impacts on your licensure status. Also, demonstrating a commitment to resolving the issues that led to bankruptcy—such as participating in financial management training or counseling—can further reassure regulatory bodies of your professional competence and integrity. 

Bankruptcy and Security Clearances 

For individuals in positions requiring security clearances, the implications of bankruptcy can be particularly concerning. The primary factor here is not the bankruptcy itself, but what it suggests about an individual's financial responsibility and potential vulnerability to coercion. Security clearances are predicated on trust and the belief that the holder cannot be easily compromised.  

However, declaring bankruptcy does not automatically disqualify someone from obtaining or retaining a security clearance. The adjudicators will closely examine the circumstances surrounding the bankruptcy, assessing whether it was caused by unforeseeable events, such as medical emergencies or layoffs, as opposed to financial irresponsibility or misconduct.  

The process of evaluating an applicant's financial background for security clearances is inherently nuanced, aimed at understanding the context of one’s financial situation rather than penalizing for financial misfortunes alone. It's essential for those affected to be transparent and proactive in addressing financial issues, showing efforts toward remediation and stability.  

Engaging with financial counselors, adhering to a budget, and making consistent efforts to repay debts can all serve as evidence of financial responsibility, potentially alleviating security concerns. In essence, the focus is on the individual's actions and intentions post-bankruptcy, offering a pathway to maintain or secure clearance even in the aftermath of financial turmoil. 

Seek Professional Advice on Bankruptcy  

Filing for bankruptcy does not mean the end of your professional life. While it's essential to be aware of bankruptcy's challenges in the workplace, it's equally crucial to focus on the opportunities and growth that lie ahead. 

In the spirit of addressing your bankruptcy concerns, the Law Office of Scott N. Tisevich is here to assist you.  

Scott N. Tisevich, brings years of experience and a dedicated approach to helping clients manage the legal and professional facets of bankruptcy. He's located in Reno, Nevada, and serves clients throughout Churchill County, Lyon County, Carson City, Story County, Douglas County, and Las Vegas.  

Contact his firm for a consultation or more information, and take the first step toward a brighter financial future—where you and your career can thrive.