Does Filing Bankruptcy Affect Employment in California?

Federal and State laws protect employees from being fired for filing bankruptcy, and most job applicants are also protected.

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When considering whether or not to file personal bankruptcy, one of the issues consumer debtors often feel the most fear and trepidation is whether filing bankruptcy might either cause them to be fired from a present job or prevent them from getting another job in the future.

Employees Cannot be Fired Due to a Bankruptcy Filing

It is against federal law for an employer to fire anyone solely because they have filed bankruptcy. Bankruptcy Code section 525(a) and (b) protect workers from such discriminatory treatment by their employers because of the employee's bankruptcy. The protections given to government workers under §525(a) are slightly broader than those afforded private sector employees under §525(b), but in either case, no employer can fire someone because she filed for bankruptcy protection.

Protection for Job Seekers in California

Additionally, those seeking government jobs cannot be denied employment solely because of the applicant's bankruptcy filing. Section 525(b), which applies to private sector employers, does not contain the same language barring discrimination in hiring based on whether someone has in the past filed personal bankruptcy.

However, with some exceptions, California has enacted protections for job applicants that operate largely to fill in this gap as to job applicants. In 2011, California Governor Jerry Brown signed into law AB22, which bans the use by California employers of most job applicants’ credit reports in making hiring decisions. Because a consumer credit report is the most likely source of information about one’s prior bankruptcy filing,

California AB22 effectively extends the protections already afforded by the Bankruptcy Code to help prevent private employers from discriminating against job applicants because they have filed personal bankruptcy. Note that I said, "most" job applicants. California's AB22 does contain exceptions for certain types of jobs, including management positions, positions where the employee will have access to the company’s trade secrets and other protected confidential information, or access to money and other assets, or to other people's bank account or credit card information, birth dates, or Social Security numbers. Also excluded are certain California government jobs, but as I noted above, Bankruptcy Code section 525(a) protects applicants for government jobs from being denied employment due to a bankruptcy anyway.

Bankruptcy Discrimination

No one can be fired solely because he has sought relief from his debts through personal bankruptcy. This kind of bankruptcy discrimination is illegal for all employers, government and private sector employers alike. Additionally, applicants for government jobs cannot be denied employment because they have filed bankruptcy. While federal law does not extend this same protection for applicants, California has stepped up to effectively extend some of the same protection for job applicants, by limiting the use by employers of an applicant’s credit report in making a hiring decision.

Learn more about bankruptcy discrimination in our section, After Your Bankruptcy.

Filing personal bankruptcy is a big decision for anyone, but the protections against job discrimination that exist under federal and California law remove a good deal of anxiety California bankruptcy debtors.

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