Bankruptcy Blog

The Bankruptcy Code has two provisions regarding employment and discrimination for filing bankruptcy.  One deals with public employers (e.g. the government, military etc.) and the other deals with private employers.

Public Employers

A public employer cannot fire you for filing bankruptcy.  A public employer also cannot refuse to hire you because you have filed bankruptcy or are even in the middle of a pending bankruptcy.

Private Employers

A private employer cannot fire you for filing bankruptcy.  However, a private employer very likely is permitted to refuse to hire you for filing bankruptcy.

A case recently came down in the Federal District Court in the Western District of Pennsylvania. dealing with this exact question.  A debtor who had been denied employment by a private employer sued that employer for refusing to hire him based solely on the fact that he had filed bankruptcy.   So this was a type of “employment discrimination” case.

The District Court determined that while the bankruptcy code  specifically states that public employers cannot engage in such discrimination, but specifically does not say that private employers cannot, private employers must be permitted to do so under the bankruptcy code.

Is this opinion binding all over the United States?  No.  This is a District Court – not the Supreme Court of the United States.  As such it is binding only in the Western District of Pennsylvania.  However, it is the first case to interpret this part of the bankruptcy statute and while not binding, other courts will certainly look to it for guidance.

As such, it is very possible that a private employer could refuse to hire you just because you filed bankruptcy.  However, if they do not pull your credit or ask you if you filed bankruptcy, and thereafter hire you, and later find out that you did in fact file bankruptcy, then it is very likely that the provision of the bankruptcy code stating you cannot be fired would kick in and protect you.

When you file bankruptcy, all of your property becomes property of the bankruptcy estate – legally – until your bankruptcy is over in a Chapter 7, or until your Plan is confirmed in a Chapter 13.  However, practically speaking, you don’t notice anything different and you continue to live in your house, use your property, spend your money etc.  However, you generally cannot sell property while in bankruptcy, without the permission of the trustee, simply because your ownership interest is “on hold” until your bankruptcy is over.

Wachovia bank has decided to “freeze” money in their customers’ accounts, when the customer files bankruptcy.  Wachovia is claiming that they are required to do this because the money is part of the “bankruptcy estate”. Technically, this is true.  However, it not required and serves no legitimate purpose.  When Wachovia has done this, Debtors’ attorneys have been able to contact the trustee, who authorizes the release of the funds – but none of this should be necessary because Wachovia should not be doing this.

If you have money in a Wachovia account, we recommend you close that account an open a new account in another financial institution, prior to filing bankruptcy.