Can I File Bankruptcy and Then Start a New Job?

Yes, you can file for bankruptcy while unemployed. Job loss is one of the top reasons people end up filing. Bankruptcy generally can't cost you a government job or your current private-sector job, though a private employer is free to factor a past bankruptcy into whether it hires you. And if you land a new job with a real pay bump while your case is open, it can knock you out of Chapter 7 or bump up what you owe under a Chapter 13 plan.

Filing for Bankruptcy and Getting a New Job Offer

A government employer can't hold your bankruptcy against you, but a private employer isn't bound by the same rule when it comes to hiring. Here's how the protection actually breaks down.

Government Employers Can't Deny You a Job Because of Bankruptcy

Public employers can't refuse to hire you, fire you, or otherwise discriminate against you because you previously filed for bankruptcy. That protection covers federal, state, and local government agencies at every stage of the hiring process. However, you can be denied a job if an unstable financial history demonstrates that you would be compromised in the particular position. (11 U.S.C. § 525(a).) 

Private Employers Can't Fire You, But They Can Decline to Hire You

Private employers can't terminate a current employee, demote them, cut their pay, or otherwise discriminate against them because that employee filed for bankruptcy while on the job. But courts have generally drawn the line at hiring. A private employer can legally pass you over for a job because of a past bankruptcy. Once you're hired, federal law protects that job.

Most employers care less about the filing itself and more about what it suggests, like a shaky credit history. So that history can work against you even though the bankruptcy filing can't be the reason you're fired once you're on the payroll. This issue doesn't come up often, but if it worries you, consider delaying your bankruptcy filing until after you've landed the job. (11 U.S.C. § 525(b).)

Will a Bankruptcy Filing Show Up on a Job Background Check?

Not usually, unless the employer runs a credit check. Bankruptcy is a public court record, but standard background checks focus on criminal history rather than federal court dockets. Bankruptcy tends to surface on a credit report. Chapter 7 filings can stay on record for up to 10 years, and Chapter 13 filings for up to 7 years. An employer needs your written permission before pulling that report, so you'll know ahead of time if it's coming.

Can You File for Bankruptcy If You're Unemployed?

Yes. Nothing in the Bankruptcy Code requires you to have a job to file Chapter 7 or Chapter 13. What matters is your income—or lack of it—because that's what determines which chapter fits.

Chapter 7 Bankruptcy Doesn't Require Steady Employment

Chapter 7 is best for filers with little or no income. It discharges qualifying debt without requiring you to repay creditors over time. But not everyone qualifies. Your income must be low enough to pass the means test, which compares your average gross income for the six months before filing against your state's median income for a household your size. (11 U.S.C. § 707(b).)

Unemployment benefits generally must be included as income for means test purposes, though a minority of courts have excluded them as Social Security Act benefits. If your average income is too high to qualify soon after you file, you'll likely qualify in a few months if you remain unemployed.

Chapter 13 Bankruptcy Requires Regular Income

In Chapter 13, you need enough income to fund a three- to five-year repayment plan for the court to find it feasible and confirm it. Unemployment benefits, severance, a spouse's paycheck, or even a pending job offer can sometimes add up to enough regular income for a feasible plan. (11 U.S.C. § 1325.)

If you don't have a realistic income source at all, Chapter 7 is usually the better fit until things stabilize.

A New Job Can Disqualify You From Bankruptcy

Yes, a new job with a real pay increase can knock you out of Chapter 7 or raise what you owe in Chapter 13. The table below shows how it plays out in each chapter.

Don't assume you're in the clear once you've filed your paperwork because you'd be mistaken. At the 341 meeting of creditors, the trustee will put you under oath and ask whether anything in your paperwork has changed. You'll need to disclose the raise and back it up with documentation.

What Happens If You Lose Your Job During Chapter 13 Bankruptcy?

Losing your job mid-plan doesn't automatically end your case, but you need to move fast. Tell your bankruptcy attorney or the Chapter 13 trustee as soon as your income drops, since your plan payment was set based on the income you had at filing.

• Ask the court to temporarily suspend or reduce your payments while you look for new work.
• Request a plan modification to lower your ongoing payment to match your new income. (11 U.S.C. § 1329.)
• Convert your case to Chapter 7 if you no longer have income to fund a Chapter 13 plan and you meet the Chapter 7 requirements.
• Apply for a hardship discharge if you can't modify the plan, your inability to pay stems from circumstances beyond your control, and your creditors have already gotten at least as much as they would have in a Chapter 7 case. (11 U.S.C. § 1328(b).)

Whatever you do, don't just stop making payments without telling the trustee. Unexplained missed payments can get your case dismissed, along with the protections you've already relied on.

Need More Info?

Bankruptcy protects your existing job and most government job applications, but a private employer can still weigh a past filing when deciding whether to hire you, and you must report any income change to your trustee right away. Use this list of Chapter 7 and 13 bankruptcy forms to find what you need for your case, and this bankruptcy document checklist to gather everything before you file. You also might enjoy the following:

• Will I Lose All My Property If I File for Bankruptcy?
• When Is My Bankruptcy Case Over?

Also, you'll find more easy-to-understand bankruptcy articles at TheBankruptcySite or consider buying a self-help book like The New Bankruptcy by Attorney Cara O'Neill.