- June 19, 2015
- Thomas Adam
It is axiomatic that the purpose of permitting Bankruptcy of all kinds is to allow the debtor a fresh start. The United States Supreme Court has recognized that this goal benefits the public as well as the debtor because the debtor receives “a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.”
Bankruptcy Discrimination Protection
It is this overarching goal that Congress was undoubtedly pursuing when it drafted 11 USC § 525, the section of the Bankruptcy Code that provides explicit protections for debtors in the context of employment. The section has two different employment related protections: § 525(a) governs government employers and § 525(b) governs private employers.
Both § 525(a) and § 525(b) prohibit bankruptcy discrimination; however, the language governing when this protection kicks in differs. § 525(a) states that a governmental unit cannot “deny employment to, terminate the employment of, or discriminate with respect to employment” based on these grounds. In contrast, § 525(b) states that a private employer cannot “terminate the employment of, or discriminate with respect to employment” based on the same grounds.
Protection Helpful, Not Perfect
Did you catch the difference between the two sections? The difference is that § 525(a) includes the language “deny employment to,” § 525(b) does not. The vast majority of Bankruptcy Courts, including the 11th Circuit in Myers v. Toojay Management, have determined that this difference in language was an intentional move on the part of Congress and that it has meaningful implications. Namely, public employers cannot refuse to hire and individual based on a current or prior bankruptcy, but private employers can.
Neither public nor private employers can fire an employee or discriminate against them (e.g. through demotion) based on a bankruptcy. The protection afforded under § 525(a) & (b) is thus helpful but not complete protection from discrimination in the employment context.
The Relevance of Credit Reports
As a practical matter, the way most employers discover a prospective (or current) employee’s bankruptcy is through review of their credit report. Federal law sets forth rules that employers conducting credit checks must follow. For example, the employer must obtain consent before running a credit report and if the employer decides not to hire because of the background check, they must notify the prospective employee of the reason and provide them an opportunity to dispute the report’s accuracy. Of course, these protections don’t help much where the reported bankruptcy was accurate.
Over the past few years, the fairness of making hiring decisions based on credit reports has started to gain widespread attention. For example, if prior financial difficulties can be used to deny employment it makes it very difficult for an individual to overcome those difficulties and if bankruptcy can be used as a reason for denying employment, then it doesn’t really seem to give a true “fresh start.”
The unfair outcomes that often result when they are the basis of a hiring decision have led 11 states to enact laws that heavily restrict the use of credit reports when making hiring decisions. Unfortunately, Florida is not one of them. Proposed Florida legislation that would have prevented the use of credit reports in many hiring decisions failed to gain enough traction.
Bankruptcy May Still Be a Rational Choice
As we’ve noted in prior Bankruptcy Blogs, whether to declare bankruptcy is an individualized decision that requires the weighing of many different factors and consequences. The Jacksonville bankruptcy attorneys at Adam Law Group can apply their bankruptcy law experience to help you decide whether declaring bankruptcy is the right choice for you. If you have already filed bankruptcy feel you have been victimized by bankruptcy discrimination, contact our attorneys today.