Can an employer (current or prospective) discriminate against you if you've filed for a Chapter 7 bankruptcy or a Chapter 13 bankruptcy? This is a question we get quite often. It is the shared concern of people currently employed and considering filing bankruptcy, and the currently unemployed person considering filing for bankruptcy, but who has the very obvious hope of becoming employed in the future. There are really two separate answers to this question; one for governmental employers and one for private employers. Section 525(a) of the Bankruptcy Code addresses discrimination by governmental employers, and Section 525(b) addresses discrimination by private employers. Sections 525(a) and 525(b) read as follows:
§ 525. Protection against discriminatory treatment
(a) Except as provided in the Perishable Agricultural Commodities Act, 1930, the Packers and Stockyards Act, 1921, and section 1 of the Act entitled "An Act making appropriations for the Department of Agriculture for the fiscal year ending June 30, 1944, and for other purposes," approved July 12, 1943, a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, 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.
(b) No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt-
(1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;
(2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or
(3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.
A reading of these two sections will reveal that both Section 525(a), relating to governmental employers, and 525(b), dealing with private employers, contain language that prohibits the discrimination of current employees on the basis of a bankruptcy filing. Unfortunately, however, only Section 525(a) (again, relating only to governmental employers) includes the language "…deny employment to…" which prohibits the discrimination of prospective employees on the basis of a bankruptcy filing. What does this mean? Well…since Section 525(b) contains no language prohibiting the discrimination of prospective employees, this means that private employers can discriminate against job applicants on the basis of a bankruptcy filing. This position was recently upheld by a U.S. District Court in Rea v. Federated Investors, 2010 WL 370334 (W.D. Penn. Jan. 29, 2010).
In Rea v. Federated Investors, the Plaintiff was denied employment after the prospective employer (a private employer) reviewed the Plaintiff's credit report and noted a 2002 bankruptcy discharge. The Plaintiff was subsequently denied employment by Defendant, and Plaintiff sued on the basis of discrimination. In dismissing Plaintiff's case, the Court noted that while Section 525(a) contains language that forbids a governmental employer from denying employment based upon a bankruptcy filing, Section 525(b) does not, and only forbids a private employer from terminating existing employment on the basis of a bankruptcy filing. The Court noted that Congress must have had a reason for omitting the language "deny employment to" from Section 525(b), and therefore reasoned that private employers may discriminate against a prospective employee based upon a Chapter 7 or Chapter 13 bankruptcy.