FAQ #7: Will bankruptcy show up on a background check for a job or security clearance?

A bankruptcy filing creates a court case in the Bankruptcy Division of the Federal District Court. The existence of a court filing in any court is a matter of public record, so there will be a public record of a bankruptcy filing. However, this does not necessarily mean that the information will be easily obtainable by the general public. For example, in order to view bankruptcy case documents, one must either go to the Federal Bankruptcy Courthouse in the district where the case was filed, or have the requisite credentials to obtain a PACER account (on-line access to Federal Court records).

Third-party agencies can determine that a case was filed through various public records search engines. Credit reporting agencies (Equifax, TransUnion and Experian) are able to obtain similar information. However, the technologies to obtain wide-reaching searches for court filings (including bankruptcy) are not readily available to the general public because of their cost. Therefore, whether or not a bankruptcy will “appear” on a background check largely depends on the type and thoroughness of the background check.

Many employers simply run a criminal offender records check (commonly called a CORI check in Massachusetts), and the CORI report will not make mention of a bankruptcy. However, more involved background checks may require the evaluation of a credit report, which, if so, would mean that the bankruptcy would be visible during a background check. Background checks for compartmentalized security clearance requests (for DOD or Law Enforcement employment) will also contain financial information, including bankruptcy.

Just because a bankruptcy is visible on a background check doesn’t necessarily mean it will have an affect on the employer’s decision, especially if you have disclosed this to them already. For example, many employers, including the U.S. Military do not view bankruptcy as a basis for the automatic withholding of a security clearance.

The status of a security clearance (or the ability to obtain a clearance) can be affected, but it is not automatic. The outcome depends on the circumstances that led up to the bankruptcy and a number of other factors, such as your job performance and the recommendations provided by supervisors, co-workers, and professional references.

The employer should evaluate whether the bankruptcy was caused primarily by an unexpected event, such as medical bills following a serious accident, or by financial irresponsibility. As a practical matter, a security clearance probably should not be a significant factor in making your decision about whether to file bankruptcy. The amount of your unpaid debts, by itself, may jeopardize your clearance, even if you don't file bankruptcy. In that sense, not filing for bankruptcy may make you more of a security risk due to the size of your outstanding debts. By the same token, using a government-approved means of dealing with your debts may actually be viewed as an indication of financial responsibility. Eliminating your debts through bankruptcy may make you less of a security risk. (Source: U.S. Air Force Judge Advocate)

If you don't see your question and would like more information please do not hesitate to call us at 508.655.5980, e-mail us, or attend one of our weekly Free Debt Relief Clinics.

Can I Lose my Job for Filing Bankruptcy?

It is prohibited by the Bankruptcy Code for an employer to fire you solely because you filed for bankruptcy.

Section 525(a) of the bankruptcy code states that a governmental unit may not

"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, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act."

Similarly, Section 525(b) prohibits private employers from terminating the employment or discriminating with respect to employment of a person who is or has been a debtor under all the same circumstances quoted above.

It is important to note, though, that the same standards may not apply to hiring discrimination. Recently, the Third Circuit Court of Appeals held in Rea v. Federated Investors that the omission of the words "deny employment to" in subsection (b) meant that private employers could discriminate against a potential employee because that person had filed for bankruptcy. The Court decided that the inclusion of the words "deny employment to" in subsection (a) was a significant difference in the obligations of governmental employers and private employers.

Special thanks to the Lawffice Space Blog for bringing this recent case to our attention.