Can an employer terminate your employment because you filed bankruptcy?

By Alfred Villoch, III, Esquire, with Savage, Combs, & Villoch, PLLC

No. An employer is strictly prohibited from terminating your employment or discriminating against you in any way solely because you filed bankruptcy. Section 525 of the Bankruptcy Code is entitled “Protection against discriminatory treatment.”  Subsection (b) specifically states that no private employer may terminate the employment of, or discriminate with respect to employment against, an individual who filed bankruptcy simply because he or she filed bankruptcy.  
Similarly, if your employment requires a license or permit, for example, a doctor, nurse, lawyer, or financial adviser, the governmental unit that issues such license or permit cannot deny, revoke, suspend, or refuse to renew such license or permit simply because you filed bankruptcy.  11 U.S.C. § 525(a).  By way of further example, a state medical licensing board cannot revoke a doctor’s license to practice medicine simple because the doctor filed bankruptcy.
That said, the bankruptcy code does not prohibit an employer for terminating employment or a governmental unit from taking action on a license or permit for reasons other than bankruptcy, for example, tardiness, failing to perform job duties, absences, crimes, etc.
Additionally, Section 525 protects people who filed bankruptcy with their current employment, but does not necessarily protect bankrupt debtors with future employment or job seeking.  An overwhelming majority of bankruptcy courts have concluded that Section 525(b) provides no protection to those who filed bankruptcy against hiring discrimination by private employers.
In Rea v. Federal Investors, 627 F.3d 937 (3rd Cir. 2010), a job applicant sued a prospective private employer and alleged that the employer violated Section 525 when it refused to hire the job applicant because he previously filed bankruptcy.  The employer moved to dismiss the lawsuit. The Court agreed with the employer to dismiss the lawsuit and held that Section 525(b) did not create a cause of action against private employers who engaged in discriminatory hiring on the basis of bankruptcy.  Specifically, Congress omitted language in Section 525(b) prohibiting a private employer from denying prospective employment to a person that had been bankrupt.
In short, federal law prohibits a current employer, whether governmental or private, from terminating employment or discriminating against an employee solely because that employee filed bankruptcy.  If you have any questions about bankruptcy and debt relief or are concerned about your current employer and filing bankruptcy, please contact Alfred Villoch, III, Esquire, with Savage, Combs, & Villoch, PLLC.  The telephone number is 813-200-0013, and web address is  We look forward to hearing from you today!

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