Usually, your employer will not find out about your bankruptcy. However, there are a few cases where they may discover or be informed of it. These include being in the public record, managing wage garnishments, creditor listings, and Chapter 13 payroll deduction orders.
Bankruptcy cases are public records. Any person can search them and find out that you have filed for bankruptcy. Nevertheless, it would be unusual for your employer to actively be reviewing the public records and discover your situation.
This is a court order that requires your employer to withhold a certain amount of your paycheck and distribute it to one of your creditors. This wage garnishment exists in effect until the debt is paid.
Wage garnishments often come about when a creditor has received a default judgment against you for not responding to the creditor’s lawsuit.
One of the reasons for filing bankruptcy is that the bankruptcy court puts in place an automatic stay, which will stop your wage garnishment. In this case, your employer will be informed of the stay and the requirement to stop any existing wage garnishments.
One of the requirements of a bankruptcy petition is your listing of all your creditors. If you owe money to your employer, then you’ll have to include them. In this case, they will be notified of your case like all other creditors.
Chapter 13 Payroll Deduction Order
Unlike Chapter 7 bankruptcies, which discharge debts, a Chapter 13 bankruptcy generally requires you to pay back creditors over a period of three to five years.
You may make periodic payments to either the bankruptcy trustee or through a payroll deduction order. This payroll deduction order requires the employer to withhold a periodic amount of payment from your paycheck. The employer then sends this withheld amount to the bankruptcy trustee.
Therefore, by receiving a court order to make these payments, your employer receives notice of bankruptcy.
Other Employment-Related Issues
If your employer does find out about your bankruptcy, then the question becomes, what can they do about it?
Retaliation for Being in Bankruptcy
The bankruptcy code does not allow an employer to fire you for being in bankruptcy or retaliate due to a payroll deduction order.
For government employers, U.S. Code section 525(a) states that the employer “may not … 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.”
For private employers, U.S. Code section 525(b) provides that they may not:
“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 … solely because such debtor or bankrupt—
- is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;
- 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
- has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.”
Being in bankruptcy may affect your ability to find a new job. There are many ways that a prospective employer would find out about your bankruptcy. For example, some employers conduct thorough background checks that include running a credit report. In the public records section of the credit report, the bankruptcy is reported.
Also, if you were subjected to a payroll deduction order at your old job, then you’ll have to file a modification with the bankruptcy court, letting it know that your employer has changed. This, in turn, will result in a new payroll deduction order, notifying your new employer of your status.
Consult a Local Bankruptcy Attorney Today
It is unlikely that your employer will discover you have filed for bankruptcy. However, even if they do, the law is clear that retaliation is illegal.
Despite this, however, you may run into difficulties with your current employer or prospective employers when they discover that you have filed for bankruptcy.
In this case, it is time to get legal help by consulting a local bankruptcy attorney to help you with any issues with your employer. Fill out our free evaluation, and a local bankruptcy attorney will be in contact to help you deal with issues raised by your employer or prospective employer.