Can bankruptcy information be used in employment decisions?

An employer may not make an employment decision based solely on a current employee's filing for bankruptcy, but the protections are not as broad for applicants who are seeking employment.

Section 525(b) of the Bankruptcy Code provides that private employers may not terminate the employment of, or discriminate with respect to employment against, an individual solely because of his or her status as a debtor or as bankrupt under the bankruptcy law. The law also prohibits adverse action against the spouse of a person who has filed for bankruptcy.

When considering bankruptcy in the assessment of applicants, the Equal Employment Opportunity Commission (EEOC) does not support a blanket policy of credit checks, nor does it support making decisions based on those credit checks without a consideration of job relatedness. Many states also restrict the use of credit checks in hiring decisions, requiring employers to ensure job relatedness and a consideration of individual circumstances. See Pre-Employment Inquiries and Financial Information.

An employer should carefully consider the reasons for any actions taken against an employee or applicant who files bankruptcy to ensure that those actions are not based entirely on that filing.