Are you wondering whether or not a bankruptcy will impact your future professional endeavors? Here’s a guide to bankruptcy and background checks.
The current millennial generation is overburdened by exorbitant student loan debt, an over-competitive housing market, and stagnant wages. Today, many people are primarily worried about making payments toward debt, as opposed to spending or saving for traditionally big purchases like a new home.
50% of millennials have taken on side jobs to tackle their debt and keep their heads above water, compared to the 39% of Americans who carry a side job.
Filing for bankruptcy can feel like a temporary sigh of relief from the never-ending stress of being in debt. It is important to keep in mind though that a bankruptcy filing will typically show up on any background checks that future employers make.
Continue reading for more information on how bankruptcy and background checks can impact your future job search.
Bankruptcy Basics
Let’s start with the bankruptcy basics. Bankruptcy is a federal court procedure in which you repay your debts to your creditors. During this procedure, either your debts are dismissed or you agree to a plan in which certain debts get repaid.
Bankruptcies do remain on your credit report for a long time. Anywhere from 7 to 10 years. There are disadvantages to declaring bankruptcy, so deciding to file should be used as a last-ditch effort only when all other options have been exhausted.
Types of Bankruptcy
There are actually six different ways to file for bankruptcy. However, the two most common are Chapter 7 and Chapter 13.
With Chapter 7, a full liquidation occurs in which some or all of your property is used in order to pay off your debts. This allows you to wipe out unsecured debts like credit card bills. With Chapter 13, you’re able to keep your property while also completing a repayment plan that typically lasts anywhere from three to five years.
Other forms of bankruptcy are:
- Chapter 9 – for cities, towns, or school districts
- Chapter 11 – for business reorganizations
- Chapter 12 – for family farmers
- Chapter 15 – for foreign debtors
Depending on the situation, a bankruptcy attorney will determine which type of filing is appropriate for you.
Causes of Bankruptcy
There are various financial circumstances in which someone would want to file for bankruptcy. The three most common reasons for filing are job loss, health care costs, and divorce.
Other reasons for filing could include large unexpected expenses due to natural disasters, damage to your property, or poor spending habits.
Bankruptcy Requirements
Filing for bankruptcy requires quite a bit of sacrifice and not everyone qualifies. For those filing Chapter 7, one of the bankruptcy requirements involves passing a means test. The means test includes two steps.
As Chapter 7 is a more extreme form of filing, the means test essentially allows the federal court to determine if the filer has enough disposable income to repay their debts. If courts find that the person filing actually has enough income to chip away debt, the likelihood they will be allowed to file Chapter 7 is low..
Step two involves the filer providing documentation about how much of their money was spent on essential items such as rent, food, and clothing. Any discretionary income is not allowed on the list as it could be used toward debt payments. The courts will look carefully at your spending habits, scrutinizing any potential miscategorized expenses.
Future Prospects
So, you’ve gone through the court process and have officially filed Chapter 7 or Chapter 13. The courts have issued an automatic stay and the endless creditor calls have been temporarily stopped. Maybe the temporary relief has given you some room to look for employment.
What should you expect going forward? For starters, any federal, state, or local government entity can’t use your bankruptcy status against you when hiring. This isn’t the case with private employers.
While the impact of going bankrupt will lessen year after year, it is still a massive blow to your credit score. Most employers do include a credit check when completing a background check.
Background Checks
Employment background checks are important as they help future employers establish a picture of who you are as a person. They merely help double-check that what you have listed on your resume or application does indeed match public records.
While credit checks are the norm as part of a background check, they do require permission on behalf of the applicant. However, there is a bit of a catch-22 as an employer can refuse to hire based on a refusal of consent to check credit. That said, a potential employer cannot refuse to hire you based on your bankruptcy history.
Section 525(b)
Under Section 525(b) of the bankruptcy code, bankruptcy discrimination is a violation of federal law. Employers can’t discriminate based on your bankruptcy status.
You can’t get fired purely because you filed for bankruptcy, nor can you be discriminated against during the hiring process. If you’re up for a promotion or a salary bump, an employer is not allowed to refer to your bankruptcy history as a means of decision.
Bankruptcy Help is Here
Background checks are a normal part of the job process. For those who have filed for bankruptcy, the bankruptcy itself will not prohibit you from gaining employment. However, a low credit score can make it difficult, which is a natural byproduct of bankruptcy history.
Having a mountain of debt can create an overwhelming hill to climb. It is possible to rebuild your finances and your creditworthiness. Depending on your circumstances, it may even be a necessary step to take to move forward.
If you’re wondering if bankruptcy might be a feasible option to get you back on track, call 402-415-2525 to contact a bankruptcy lawyer in Omaha at Husker Law today. Our dedicated team of professionals is here to help you every step of the way.
