Postbankruptcy Discrimination: What Is and Isn't Allowed

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There are laws that will protect you from most types of postbankruptcy discrimination by the government and by private employers.

Laws Prohibiting Discrimination by the Government

All federal, state, and local governmental units are prohibited from denying, revoking, suspending, or refusing to renew a license, permit, charter, franchise, or other similar grant solely because you filed for bankruptcy.

This law provides important protections, but it does not insulate debtors from all adverse consequences of filing for bankruptcy. Lenders, for example, can consider your bankruptcy filing when reviewing an application for a government loan or extension of credit. 

Still, under this provision of the Bankruptcy Code, the government cannot use your bankruptcy as a reason to:

  • deny you a job or fire you
  • deny you or terminate your public benefits
  • evict you from public housing (although if you have a Section 8 voucher, you may not be protected)
  • deny you or refuse to renew your state liquor license
  • withhold your college transcript
  • deny you a driver’s license, or
  • deny you a contract, such as a contract for a construction project. 

In addition, lenders may not exclude you from government-guaranteed student loan programs. 

In general, once any government-related debt has been discharged, all acts against you that arise out of that debt also must end. If, for example, you lost your driver’s license because you didn’t pay a court judgment that resulted from a car accident, you must be granted a license once the debt is discharged. If your license was also suspended because you didn’t have insurance, you may not get your license back until you meet the requirements set forth in your state’s financial responsibility law. If, however, the judgment wasn’t discharged, you can still be denied your license until you pay up. 

Keep in mind that only government denials based on your bankruptcy are prohibited. You may be denied a loan or job, or an apartment for reasons unrelated to the bankruptcy. This includes denials for reasons related to your future creditworthiness—for example, because the government concludes you won’t be able to repay a Small Business Administration loan.

Discrimination by Private Entities

Whether a private entity can discriminate against you because you filed for bankruptcy depends on the context.

Private Employers May Not Fire You Because of Your Bankruptcy

Private employers may not fire you or otherwise discriminate against you solely because you filed for bankruptcy. While the law expressly prohibits employers from firing you, it is unclear whether the act prohibits employers from refusing to hire you because you went through bankruptcy. For example, one recent appellate court held that the bankruptcy rules do not prohibit employers from denying someone a job because the person had filed bankruptcy.

When Private Entities May Consider Your Bankruptcy

Unfortunately, other forms of discrimination in the private sector aren’t illegal. If you seek to rent an apartment and the landlord does a credit check, sees your bankruptcy, and refuses to rent to you, there’s not much you can do other than try to show that you’ll pay your rent and be a responsible tenant. It’s often helpful if you can prepay your rent for a few months, or, if it is permitted under your state’s laws, provide a bigger security deposit. (However, if you file for bankruptcy in the midst of a lease, your landlord cannot use this as grounds to evict you before the lease term is up.)

If a private employer refuses to hire you because of a poor credit history—not because you filed for bankruptcy—you may have little recourse.

If you suffer illegal discrimination because of your bankruptcy, you can sue in state court or in the bankruptcy court. You’ll probably need the assistance of an attorney.

Excerpted from How to File for Chapter 7 Bankruptcy, by Attorney Stephen Elias, Albin Renauer, J.D., & Robin Leonard, J.D. (Nolo).

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