Will Your Boss Find Out About Your Bankruptcy (And Does It Matter)?

Posted on: 29 January 2016

The high cost of divorce and the inability to handle debts incurred during the marriage and two separate households drive a lot of recently divorced people into bankruptcy, even when they have good jobs. That can put additional stress on you if you're trying to keep your private life out of the office. A lot of people worry about how bankruptcy will look to their bosses and what will happen if their employer finds out that they've been drowning in debt. Before you file, this is what you should know.

During Chapter 7

Most people think of Chapter 7 when they think of bankruptcy, because it offers straight relief from debts without any extended process or payment plans. It generally takes 3-4 months from the time you file your Chapter 7 bankruptcy for you to obtain a discharge.

During that time, you'll give a list of creditors to the bankruptcy trustee and each creditor will receive a notice of the proceedings. You'll also disclose your income and other assets to the trustee at the same time. There are only a few reasons that the trustee would need to notify your employer about your bankruptcy:

  • You didn't provide adequate documentation of your wages, tips, or bonuses, and the trustee feels the need to verify the information with your employer for accuracy.

  • Your employer is one of your creditors. For example, your employer happens to be a friend and loaned you money to help you pay some bills or buy a car.

  • Your wages are being garnished by a creditor. In that case, the trustee will notify your employer to stop the withholding.

It used to be standard for bankruptcies to be published in the local newspapers, under legal notices. This was a means of notifying creditors. However, this practice has fallen off in recent times and is no longer commonly done. If none of the above conditions applies to your situation, your boss probably won't find out that you've filed bankruptcy.

During Chapter 13

A Chapter 13 bankruptcy is chosen by people who can afford to repay some or all of their debts through a 3-5 year plan, depending on their specific circumstances and income. Many people who choose this type of bankruptcy do so in order to avoid foreclosure, catch up on support payments after divorce, or deal with tax issues.

During the repayment plan, the trustee is likely to require certain payments to be automatically deducted from your paychecks. This includes things like the monthly payment to the court for disbursement to your creditors under your plan and any child support or spousal support payments. That way, the trustee guarantees that you don't get behind on any of the payments and run into a problem.

Because bankruptcy is a matter of public record, it's always possible that your employer will find out that you filed, even if there's no specific reason for him or her to be notified. While it might disturb you to have your boss find out that you're filing bankruptcy, it might comfort you to know that it is illegal for an employer to fire you or discriminate against you because you filed for bankruptcy. It doesn't matter if you are employed by a government agency or a private employer—the law is the same.

Keep in mind, bankruptcy laws are there to protect consumers who have fallen on unfortunate times, not to punish them. Divorce is one of those events that commonly drives the need for a bankruptcy and many people, including employers, are understanding of the situation. For more advice on bankruptcy, consider speaking with an attorney like Arthur David Malkin Attorney At Law today.