Financial insolvency affects individuals more intensely than when a corporation files for bankruptcy. Bankruptcy can stymie your career in some instances. Major factors include the kind of job you have, your career goals, and the type of bankruptcy you choose to file for.
The stigma associated with bankruptcy is considerably less today than a few decades ago. However, your employer might be concerned about your ability to manage company projects and employees if you cannot even manage your personal affairs. Bankruptcy stays on your credit report for up to 10 years.
If your employer does find out, and they definitely will if you file Chapter 13, then be prepared to explain the unusual circumstances that caused your financial distress, such as overwhelming medical bills or a divorce. Additionally, explain the difference between Chapter 13 and Chapter 7 bankruptcy.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a repayment plan that involves part or all of your indebtedness. The judge orders your creditors to accept the monthly payment amount he designates. Moreover, he has the authority to reduce the overall debt, perhaps eliminating late charges and legal fees he considers excessive.
The court usually garnishes your paycheck for the monthly payment. Otherwise, your creditors process garnishments for the amount permitted by the judge. In either case, your payroll department will receive garnishments against you so there is no way to hide a Chapter 13 bankruptcy from your employer. The garnishment generally lasts from 3 to 5 years.
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy is the easiest to hide from your employer, provided you are not in a profession where the employer runs yearly credit reports. Many employers don’t bother with credit reports on employees that do not handle cash or have sensitive jobs. However, if you plan on changing employers or applying for a promotion, such a serious black mark on your credit report can prevent you from getting another job.
When you file Chapter 7, you are declaring that you do not have sufficient assets to even make partial payments to your creditors. You do not have to declare all your debts, just the ones you cannot repay. You only have to prearrange a vacation day at work to go to court. There are no garnishments or contact with your employer if the judge grants your request.
The federal law that protects employees and prospective job applicants from being demoted or denied employment only applies to people who work for a local, state or federal government agency. Employees of private companies are only protected from being fired. A private employer can demote a current employee to a lesser position or refuse to hire a new applicant with a recent bankruptcy.
The declining job market in the United States has made it tougher to get a good-paying job. Most of the new jobs being created are at the bottom end of the pay scale. Employers are able to pick and choose among a large pool of applicants.
Bankruptcy is a double-edged sword. It relieves you of an overwhelming financial burden but can adversely affect your ability to get ahead in your career. Consider the long-term effects before filing.