Can An Employer Fire Me For Filing Bankruptcy?

While there has never been a ruling by the Supreme Court regarding this issue, there are several cases in which District Courts have passed down decisions on the issue of discrimination based on bankruptcy status.

The good news is, you cannot be fired by a public employer based on the fact that you have filed for bankruptcy. In addition, a public employer cannot refuse to hire someone because they have filed for bankruptcy or are in the middle of a pending bankruptcy filing.

When it comes to private employers, however, it can be a totally different question. A private employer may, depending on the state, be permitted to refuse to hire you based on the fact that you have filed for bankruptcy in the past. While Section 525 of the US Bankruptcy Code does prohibit employment discrimination against those who have filed bankruptcy, lawsuits for this sort of discrimination are rarely the subject of lawsuits.

In the case of Rea v. Federated Investors, the US Court of Appeals for the Third Circuit explored the idea of discrimination based on bankruptcy status. Mr. Rea had applied for a job with the Federated Investors, and despite a successful interview, he was informed that he had not been selected for employment due to a bankruptcy seven years prior. Rea filed suit, claiming that he had been discriminated against under Section 525.

Section 525(b) of the Code, reads: “No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under [the Code].” The issue in the case was whether a private employer could discriminate against job applicants based on prior bankruptcies.

While Section A of the code specifically reads that government agencies cannot discriminate based on bankruptcies, the courts found that since Section B does not specifically address the issue, private employers are, in fact, allowed to deny applications based on bankruptcies.

Although this decision does give employers greater flexibility in selecting applicants, it does remain unlawful for employers to terminate or discriminate against a current employee based on the fact that they have filed bankruptcy.



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