February 28, 2020

Does My Employer Have to Know if I File for Bankruptcy?

Most people don’t look forward to people finding out that they are filing for bankruptcy protection. While it’s true that some newspapers still post-bankruptcy notices, that’s not a part of the paper that most people read. In the majority of cases, the people that you know are not going to learn that you’ve filed for bankruptcy unless you choose to tell them. Even your employer does not have to find out in most cases.

There are a few scenarios in which your employer either must know or is likely to find out. Here are three examples of when your bankruptcy is likely to become known to your employer and why that knowledge is not likely to harm the relationship.

Your Wages Are Currently Being Garnished

You already have one or more garnishments on your wages or salary. That means the team handling the payroll is aware that you have financial issues. It’s their responsibility to continue withholding funds from your income until those judgments are settled in full.

The only thing that will change is official notification from the bankruptcy court. Once payroll gets word from the court that you have filed bankruptcy, they no longer have to do the withholdings. In this situation, you want your employer to be aware of the bankruptcy since it releases them from having to continue having the garnishments deducted from your pay.

You File for a Chapter 13 Rather Than a Chapter 7

Unlike a Chapter 7, a Chapter 13 bankruptcy does not quickly discharge your debts. What it does do is place you under the protection of the court while you pay all or most of those debts in accordance with a plan approved by the court. Moreover, you will make payments to the court so they can be disbursed to your creditors. This will continue for anywhere between three and five years.

While the court may allow you to make the payments yourself, it’s not unusual for bankruptcy courts to notify employers to have payments withheld from your paycheck. Once a month, the employer forwards those funds to the court.

While your employer does have to be notified in this case, don’t worry about your job. It’s expressly against the law to terminate an employee because of a bankruptcy.

Your Employer May Check Your Credit Reports

It’s not unusual for employers to conduct investigations when considering employees for promotions. Part of that investigation could include running credit checks. If the bankruptcy is showing on one or more of your credit reports, the employer may find out.

It’s understandable that the bankruptcy is not something you want to share with everyone. Should your employer need to be notified or find out about the bankruptcy later on, don’t be concerned. Most employers understand that hard times can happen to anyone and shouldn’t hold the action against you.