Filing for bankruptcy is a major decision made by individuals and businesses who cannot pay their debt as agreed upon with creditors. For most individuals, bankruptcy offers much-needed relief from overwhelming debt. Additionally, it protects you from legal actions by creditors seeking repayment.
However, filing for bankruptcy can have significant personal, financial, and professional impacts. Whether your career is directly on the line depends on different factors. They include your profession, your employer’s policies, and whether you hold any professional licenses. Federal law provides certain protections for individuals who file for bankruptcy.
The key to avoiding bankruptcy-related career problems is understanding your rights. Additionally, you must stay informed about industry-specific risks and use bankruptcy as a tool for financial relief. Hiring and retaining a knowledgeable bankruptcy lawyer is critical. Your attorney will help you understand the different effects of bankruptcy and protect your constitutional rights throughout the bankruptcy process.
Employment Law and Bankruptcy in California
Most individuals file for bankruptcy as a final solution to their financial difficulties. Bankruptcy can offer the relief you need from the debts and give you a fresh start. However, some people fear bankruptcy's impact on their careers and livelihoods. Bankruptcy is a right provided under the U.S. Constitution. Therefore, some laws protect filers from the adverse career effects of bankruptcy. They include:
Federal Protection Against Employment Discrimination
Under 11 U.S. Code § 525, federal law offers important protections for public employees and individuals who have filed for bankruptcy. According to this provision, a governmental unit cannot deny someone a job or terminate their employment solely because they have filed for bankruptcy.
The law prevents the stigma of bankruptcy from limiting a person's ability to rebuild their life. The rules are different for private employers. U.S. Code § 525 prohibits termination of an existing employee solely based on a bankruptcy filing.
However, it does not forbid private companies from factoring in your bankruptcy status when hiring. If you seek employment positions involving financial responsibilities, private employers may consider your bankruptcy to determine your eligibility.
California Labor Laws
California has robust labor protections. Although its statutes do not address bankruptcy like federal law, there are related protections. California prohibits unlawful discrimination based on categories such as race and gender. Although financial status is not listed, bankruptcy discrimination can be challenged if it affects certain groups of individuals.
For private employers in California, there is no ban on refusing to hire someone because of a past bankruptcy. After employment, California law aligns with federal protections in that an employer cannot terminate your employment because they have filed for bankruptcy.
Occupation-Specific Considerations for Bankruptcy
When considering bankruptcy, you must understand how it might impact your profession. Many people can file for bankruptcy without any effect on their employment. However, there are certain occupations where additional scrutiny may occur. Bankruptcy can play a role in the hiring process for professions requiring:
- Fiduciary responsibilities
- Professional licensing
- Security clearances,
The following are some ways through which bankruptcy might affect specific professionals:
Financial Services and Accounting
Financial professionals are held to high standards of personal financial responsibility. They include roles such as:
- Certified Public Accountants (CPAs)
- Financial advisors
- Mortgage brokers
- Insurance agents
Individuals in these fields are responsible for maintaining fiduciary integrity. They often handle other people's money and give financial advice. For this reason, regulators and employers may look unfavorably on a bankruptcy filing. Bankruptcy is viewed as a potential indicator of poor financial judgment.
Filing for bankruptcy does not disqualify someone from maintaining professional licenses in the financial sector. However, some regulatory bodies may need extra documentation or explanations. They include:
- The Financial Industry Regulatory Authority
- The National Association of Insurance Commissioners
- California Department of Insurance
These bodies seek to understand the context of your bankruptcy. You may need to explain whether your bankruptcy resulted from unforeseen financial challenges or misconduct.
You can maintain your professional standing by giving an honest and detailed explanation. Additionally, you can present evidence to show that you are taking the proper steps to rebuild your financial life. Ignoring the issue can create more significant problems, leading to disciplinary measures.
Legal Profession
For lawyers, judges, and other legal professionals, bankruptcy can trigger concern. The issue can arise during the character and fitness evaluations needed for bar admission. These evaluations ensure that legal professionals show integrity, financial responsibility, and sound moral character. When applying to the bar, you must thoroughly explain the situation if you have recently filed for bankruptcy.
Bankruptcy by itself will not prevent your admission. However, it can cause issues, particularly if there are misconduct trends. A bankruptcy filing will not affect your ability to work as a legal professional. The key concern for disciplinary boards is how you handle client funds and professional duties.
Bankruptcy due to personal debt is not a ground for disbarment. However, you must manage the process with transparency and respect ethical considerations. You could face disciplinary action if your bankruptcy resulted from fraudulent conduct. Legal professionals are held to high ethical standards. Financial misconduct involving clients can result in sanctions, license suspension, or permanent disbarment.
Healthcare Professions
Healthcare professionals like doctors and nurses do not lose their licenses due to personal bankruptcy. Licensing boards focus on public safety and ethical conduct instead of your financial situation. However, bankruptcy involving the following circumstances can raise concern:
- Insurance fraud
- Abuse of public healthcare programs like Medicare
- Other criminal activity
Ethical lapses involving patient care or billing fraud are serious concerns. Engaging in such conduct could result in suspending or revoking a medical license. A medical professional may occasionally experience financial hardship due to medical school costs or illness. Under these circumstances, bankruptcy is viewed as a financial rest. Remaining transparent with the licensing board when bankruptcy comes up can reduce its impact.
Government and Security Clearance Jobs
If you work in a government position requiring a security clearance, bankruptcy can significantly impact you. The professions include:
- Defense
- Intelligence
- Homeland security
- Law enforcement
These roles often involve access to sensitive information. Financial irresponsibility is considered a risk factor for potential coercion or bribery. Bankruptcy does not disqualify you from obtaining or maintaining a clearance. Therefore, honesty and transparency about your financial situation can work in your favor. Security clearance adjudicators look more favorably on individuals who engage in the following acts:
- Take responsibility for their debts.
- Seek help to address the issues that cause financial troubles.
- Use legal means like bankruptcy to manage financial burdens.
You are considered a higher risk. If you hide debt, fail to file taxes, or ignore creditors. Filing for bankruptcy shows a willingness to resolve financial issues. If you are concerned about how a bankruptcy might affect your clearance, consider speaking with a skilled bankruptcy attorney before filing.
Credit Checks and Job Applications
Employers may request a credit check in California as part of the hiring process. Credit checks are standard for positions handling money or accessing sensitive financial information.
Employers may also require credit checks for roles with managerial responsibilities. These jobs need individuals with high financial integrity and decision-making abilities. Unfortunately, bankruptcy may sometimes result from poor financial planning and decisions.
California’s Restrictions on Credit Checks
California has specific restrictions in place on the use of credit checks in employment. California Labor Code Section 1024.5 limits when and how employers can request credit reports for job applicants. These laws protect the applicants' privacy and prevent discrimination based on financial history. Credit checks are only permitted for certain types of positions. These include:
- Managerial roles where individuals make strategic business decisions
- Jobs with access to bank or credit card account information
- Positions involving access to confidential or proprietary information
Even when credit checks are legally allowed, California law requires employers to follow a specific procedure. The employer must:
- Notify the applicant in writing before conducting a credit check.
- Obtain written permission from the applicant to run the credit report.
- Provide a copy of the report if the applicant is denied employment based on the contents of the credit report.
Chapter 7 bankruptcy can remain on a credit report for up to 10 years. Therefore, it might appear in most of your credit scores when the job requires it. However, employers are not always allowed to use this information when hiring.
Self-Employment and Entrepreneurship After Bankruptcy
Filing for bankruptcy is a turning point for individuals seeking self-employment or entrepreneurship. Bankruptcy does not prohibit you from starting or operating a business. It offers a financial reset and a clean slate to rebuild and innovate.
Business Credit
Bankruptcy, mainly Chapter 7, will ruin your credit score. However, the decline does not automatically disqualify you from launching a business. You can still legally register a new Limited Liability Company (LLC) or a sole proprietorship. However, obtaining traditional business loans or lines of credit becomes difficult, especially in the first few years post-bankruptcy.
Financial institutions may view you as a higher-risk borrower after bankruptcy. Therefore, your loans could come with stricter lending requirements. Additionally, vendors, suppliers, and landlords may ask for more extensive upfront deposits to cater to the perceived risk. Demonstrating consistent revenue can help restore trust and improve your financial standing.
Bankruptcy and Paycheck Protection Program Loans
If you have recently filed for bankruptcy, it may affect your eligibility for the Paycheck Protection Program loans. The program is backed by the Small Business Administration (SBA) and imposes restrictions on applicants with recent bankruptcies. However, regulations can evolve, and exceptions may apply. Therefore, you must review current program guidelines or consult a legal or financial advisor.
Psychological and Social Career Effects of Bankruptcy
The impact of bankruptcy on your career does not always involve job loss or the loss of your professional license. Sometimes, it can affect your ability to work and focus on career development. Common psychological and social effects of bankruptcy on your career include:
Stigma and Confidence
Filing for bankruptcy often carries a social stigma. Many individuals report guilt, shame, or embarrassment after receiving the discharge. The emotional burden can have real consequences in a professional setting. For example, you could experience lower confidence in interviews.
The constant worry that your financial history could influence the employer's decision can prevent you from doing your best. Additionally, you may feel reluctant to network, fearing judgment from colleagues or employers. These negative feelings can create self-doubt and lead to missed career opportunities.
Bankruptcy is a legal tool meant to offer a fresh start and does not represent a moral failure. Seeking mental health support and financial counseling can help you overcome these psychological issues. You can talk to a therapist to help you rebuild self-esteem. A financial advisor, on the other hand, can guide you toward better money management and future planning.
Workplace Gossip or Perception
Some take a back seat in career advancement for fear of workplace gossip or perception after a bankruptcy. Bankruptcy filings are part of the public record. However, they are not published, and a person can only find them when performing a background check or credit check on you.
There are exceptions to privacy when the bankruptcy involves a high-profile case or individual. In these situations, the bankruptcy might attract media attention. For an average person, you should not have to worry about the social perception of your case.
Strategies for Minimizing Career Impact After Bankruptcy
Declaring bankruptcy is a significant financial choice that may cause emotional and professional stress. Many people who file for bankruptcy are concerned about how it may impact their careers. By managing the issue as needed, you can prevent the adverse effects.
Bankruptcy appears on your credit report for several years. However, its impact on your employment does not have to be long-term or damaging. The following are some strategies you can use to reduce negative career implications:
Choose the Right Type of Bankruptcy
Employers and creditors do not view all the bankruptcies the same. Filing under Chapter 13 may reflect more responsibility if you have a regular and steady source of income. Chapter 13 involves creating a structured plan to repay your creditors.
This type of bankruptcy shows that you are taking steps to repay your debts. In financial employment, an employer may consider you more responsible if you take the proper measures to cover the debt.
Maintain Transparency When Appropriate
Honesty is often the best policy if a potential employer raises your bankruptcy during a background check. You are not required to disclose your bankruptcy in most job applications. However, if it comes up, you should discuss it openly.
You can frame the bankruptcy filing as a learning experience. Emphasize the steps you have taken to improve your financial situation. They could include:
- Attending financial literacy workshops
- Sticking to a strict budget
- Working with a financial advisor.
Showing growth and maturity can leave a positive impression on your employer.
Rebuild Your Credit Promptly
Working to rebuild your credit after a bankruptcy discharge can counter the career impact of bankruptcy. You can start by obtaining a secured credit card and using it responsibly. Always pay bills on time, avoid new debt when possible, and keep your credit use low. Over time, these steps can improve your credit score and help prove to future employers that you are financially responsible.
Limit Credit Checks in the Hiring Process
Under the Fair Credit Reporting Act (FCRA), some jobs restrict how and when employers can run credit checks. You can avoid a negative impact on your career by seeking a position where credit checks are not permitted. FCRA requires employers to ask your permission before checking your credit.
Additionally, they must notify you if the information affects their hiring decision. Knowing your rights helps you stay protected and apply for roles and positions where credit history is less of a factor.
Career Counseling and Legal Advice
Navigating career concerns after bankruptcy is overwhelming. Therefore, you must consult professionals. A bankruptcy attorney can explain the legal implications of your filing and how it may intersect with your employment. Before receiving a bankruptcy discharge, you may need to undergo credit counseling. However, you may need more career counseling post-bankruptcy.
A career coach will help you plan your next career moves. Additionally, they will help you practice handling the bankruptcy conversation if it comes up during interviews. You can protect your professional reputation by taking a thoughtful and strategic approach.
Find a Competent Bankruptcy Lawyer Near Me
Most individuals will opt for bankruptcy when they have overwhelming debt and no means to pay it. Filing for bankruptcy in California might create career-related challenges, especially in finance, government, and licensed professions. However, your career is not automatically on the line when you declare bankruptcy. Most people can maintain or even improve their career trajectory after bankruptcy.
Especially in high-pressure fields, the mental load of debt can affect your performance. Filing for bankruptcy can provide mental clarity and reduce stress. It allows you to focus on your career instead of dealing with creditors. If you approach the process honestly and with the help of professionals, you can reap maximum benefits.
While you pursue your bankruptcy petition, you will need the guidance of a reliable attorney. At Los Angeles Bankruptcy Attorney, we offer expert legal insight for our clients filing for bankruptcy in Los Angeles, CA. Contact us at 424-285-5525 to discuss your case.
