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Monday, May 16, 2011

Your Employer Can’t Discriminate Because of Your Bankruptcy (But Your Potential Employer Can)

The Bankruptcy Code says: “No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt . . . .” Seems pretty clear, huh? Ordinary mortals read the language “or discriminate with respect to employment against” to include discrimination in hiring.

The federal appellate courts, as we know, are not ordinary mortals. In a recent case, the 5th Circuit Court of Appeals found that this provision did not apply to discrimination in hiring. The employer withdrew a job offer after the background check revealed that she had filed for bankruptcy.

The court said, “Had Congress wished to bar private employers from discriminating against debtors in their hiring decisions, it could have done so by adding the phrase ‘deny employment’ to [the law] when it amended [the law] in 1994 and again in 2005.”

The 5th Circuit joined the 3rd Circuit in this reasoning.

Why the tortured logic? Well, it’s at least partly Congress’s fault (isn’t it always?), because they put hiring in a provision about government employers:

“[A] governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated . . . .”

These two courts are assuming that Congress thinks like they do (they don’t) and they are failing to take into account that the two provisions weren’t passed at the same time. So sure, Congress could have included that language. But they’re ordinary mortals who assumed that the phrase “discriminate with respect to employment” meant what it says.

The 11th Circuit has a similar case in front of it, and these cases are popping up all over now. If another circuit decides differently, then the Supreme Court will have to decide which interpretation wins out.

In my opinion, employers who refuse to hire people just because of bankruptcies are idiots. What on earth does that have to do with their skills? Why exclude an increasingly large number of potential candidates just because the economy tanked?

In the meantime, Congress should immediately act to fix the darned law so their constituents aren’t denied employment just because they filed bankruptcy. Support for the change should have nothing to do with party lines. It’s the right thing to do.


  1. Hi there,
    I believe in Illinois, as of January 1 of 2011, a potential employer can no longer discriminate based on credit history or credit check that looks bad.

  2. Yes, Rach, there are some states passing laws against credit history discrimination (Illinois and Oregon to name two). The EEOC is looking at the potential disparate impact on minorities of credit history discrimination. And if they don't comply with the Fair Credit Reporting Act, then there may also be some legal remedies. But in my opinion the Bankruptcy Code itself needs to be fixed to address this particular loophole.

  3. myself, i'd say it has nothing to do with skills.

    it has to do with judgment. it has to do with commitment. it has to do with the idea standing by your word.

    and it has to do with choice.

    it has to do with whether or not you feel a person has a right to work or a right to a job.

    and it has to do with whether or not you are for a society that has a socialistic form of economy or a frree enterprise form of economy.

  4. Griper, bankruptcy is supposed to be a fresh start. People can't get a fresh start if they can't get a job to get out of debt and start paying their bills.

    It has to do with how we, as a society, treat those people who are in their most dire hour of need. Do we shun them just because the economy tanked or they had medical bills that weren't covered by insurance? Or do we treat them with respect and truly give them a chance to start over?

    I'd rather make sure they are judged based on their actual qualifications and abilities than see them on welfare or homeless.

    It has to do with dignity and we, as a society, standing by our word that bankruptcy will truly be a new start.

  5. fresh start!!!! then why is it on your credit record for ten years? there is where a fresh start begins. no one can really have a fresh start in life until those ten years are up. bankruptcy is only the first step in getting a fresh start.

    there is where a business can find out about those qualifications i spoke of.

    and if businessman can determine whether or not he will do business with another person based on this in one aspect of his business then why should it be different in another aspect of his business?

    trust is an important factor in every aspect of business.

    and it does not prevent a person from getting a job, it just makes a little harder and requires not just good arguments but very good arguments in an interview by the prospective employee.

    as a lawyer you should know that by experience.

    and bankruptcy occurs in good times also.

    the ability to make good decisions is one of the qualifications of employment, isn't it?

    with no disrespect intended, you're making a good emotional appeal argument but not a very good logical argument.

    then he smiles,,, then again you are a lawyer trained in the art of convincing people and you are good at it too. and you know that in some cases it requires a far more preparation and a better argument than others in order to win your case.

  6. Ah yes Giper, so when a loved one has a serious disease or someone loses everything due to being laid off, it has everything to do with judgement and commitment and choice.

    People totally chose to have cancer or kids with disabilities! They totally chose to be laid off when their company shuts down. It's all nothing but a choice!

    Yeah, I don't trust people with cancer or who've lost their jobs due to the economy either. I'm glad to know I'm in such great company!


I appreciate your comments and general questions but this isn't the place to ask confidential legal questions. If you need an employee-side employment lawyer, try http://exchange.nela.org/findalawyer to locate one in your state.