Will I lose my job if I file bankruptcy?

Posted by Kevin on January 6, 2011 under Bankruptcy Blog | Be the First to Comment

The quick answer is NO.  But, it can keep you from being hired if it is a private sector job.

In prior blogs, we talked about the court structure.  New Jersey is in the 3d Circuit.  The 3d Circuit just came down with a ruling concerning whether a private employer violated the law by refusing to hire the debtor.  The case originated in Pennsylvania.  But the ruling applies to NJ.

Section 525 of the Bankruptcy Code covers this situation.  When the Bankruptcy Code was amended in 1978, Section 525 only dealt with “governmental units”.  It stated that a governmental unit may not deny employment to, terminate the employment of or discriminate with respect to employment of a person who is or has been a debtor.

Later, Section 525 was amended to deal with private employers too.  But the amendment that dealt with private employers stated that no private employer may terminate the employment of or discriminate with respect to employment against a person who is or has been a debtor.

Sounds pretty much the same EXCEPT the private employer amendment says nothing about “deny employment to”.

The debtor took the position that employees in the private section should have the same rights that employees in the public sector (government workers) have.

Not so, said the 3d Circuit.  It based its ruling on what is called “statutory construction”.  That means that the court looks at the wording of the statute.  If the wording is clear on its face, then the court applies the statute as written.

At any rate, the 3d Circuit said that the wording was clear, and that if Congress wanted to protect private sector workers from being denied employment, they would have added that clause to the amendment to the statute.

In the case before the court, the debtor filed bankruptcy in 2002 and was discharged in 2003.  In 2009, he applied for a job.  He told the employer about the bankruptcy who intially said that it was no problem, and then used it as a basis to deny employment.

Even though this ruling would appear unfair to the average person (me included), most courts that have decided the issue have ruled exactly the same as the 3d Circuit.

That would mean that if you filed bankruptcy in 1990 and applied for a job today, that bankruptcy could be used to deny you the job.  Maybe Congress ought to re-think this one.