Do Bankruptcies Show Up on Background Checks?

The purpose of filing for bankruptcy is to provide individuals with a chance to reconcile with their creditors and begin anew. Nevertheless, the presence of bankruptcy on your credit report could impede your future plans, such as obtaining a mortgage or reaching specific career objectives.

If you are planning to file for bankruptcy and are worried about it showing up on your background check, contact a skilled bankruptcy lawyer. Speaking to an experienced New Jersey bankruptcy attorney can also help you understand the different types of bankruptcy in New Jersey and how they may affect your job application.

While bankruptcy is often viewed negatively, it can also indicate that you have taken steps to improve your financial situation. If you are worried that a past bankruptcy might affect your job prospects, it’s worth noting that the Fair Credit Reporting Act prohibits bankruptcies that are over 10 years old from being included in an employee background check. 

Your credit report may show a Chapter 7 bankruptcy for a maximum of 10 years, starting from the date of filing. However, a Chapter 13 bankruptcy will be removed from your report after seven years after the filing date. When the designated period of seven or 10 years has elapsed, the bankruptcy will be erased from your credit report automatically.

Additionally, federal law prohibits government employers from discriminating against job applicants solely based on bankruptcy. This rule applies to federal, state, and local levels. However, private employers do not have the same restrictions, so they are not prohibited from taking bankruptcy into account when making hiring decisions.

Which Reports Do Background?

Various types of background checks exist, which may include an investigation of criminal records, academic achievements, employment history, and credit status. Bankruptcy information can be found on credit reports but not on criminal records. 

The extent of the background check that an employer conducts typically depends on the role being offered. If a position does not entail the management of someone else’s finances or the assumption of fiscal responsibility, a credit check may be unnecessary.

To conduct a credit check as part of the hiring process, an employer must obtain written consent from the applicant. If you anticipate that your past bankruptcy may be revealed through a credit check, it may be wise to inform a potential employer beforehand. By revealing this information yourself, you can provide context about your situation and explain how you have taken steps to resolve your past financial difficulties.

Federal Law Surrounding Background Checks

The Fair Credit Reporting Act (FCRA) safeguards the confidentiality of personal information collected, held, and reported by consumer reporting agencies (CRAs), such as background check providers, to protect consumers. The FCRA is enforced by the Consumer Financial Protection Bureau. 

In accordance with 15 U.S. Code § 1681c, the FCRA limits employers who hire for jobs with annual salaries less than $75,000 from reporting tax liens paid, civil lawsuits, civil judgments, and Chapter 13 bankruptcies that are more than seven years old (Chapter 7 bankruptcies can be reported for up to ten years).

If the bankruptcy continues to appear on your credit report beyond the period they are expected to be removed, you have the option to file a dispute with the credit bureaus (Experian, Equifax, and TransUnion) to request its removal.

Before carrying out a background check, employers must also notify the applicant and obtain their written approval.

Moreover, the FCRA regulates an employer’s actions when they find out about an applicant’s bankruptcy or other negative information during a background check. To deny an application based on prior bankruptcy or other adverse findings, employers must follow the adverse action process before making a final decision.

Under 11 U.S.C. § 525(b), private employers are prohibited from discriminating or terminating employees solely based on their bankruptcy filing.

However, private employers can consider an applicant’s past bankruptcy as one of several factors when considering them for employment if it is related to the duties of the job.

Under 11 U.S.C. § 525(a), government employers cannot discriminate or modify an employee’s employment terms based on a bankruptcy filing. Additionally, government employers cannot deny applicants employment solely based on their prior bankruptcy filing.

Could My Bankruptcy Record Affect My Ability To Rent a Home?

When seeking to rent a home, landlords may consider your bankruptcy history when deciding whether or not to rent to you. Landlords may be more hesitant to rent to individuals with more recent bankruptcy filings. However, if your financial record is sound, the bankruptcy filing occurred more than two years ago, and you don’t have a significant history of evictions, it may not have a significant impact.

It’s a good idea to disclose your bankruptcy history when discussing renting with a landlord and if they mention a background or credit check. If you can demonstrate that you’ll be able to make rent payments and have a stable income, it may outweigh any concerns about your bankruptcy record.

Typically, a responsible landlord will prioritize your income and ability to pay rent over any past bankruptcy. Bankruptcy may even benefit you by freeing you of other financial obligations and making it easier to afford rent payments. If you have a track record of making timely rent payments despite financial difficulties in the past, landlords may be more understanding and willing to rent to you.

How Does Bankruptcy Affect Your Job and Future Credit

Bankruptcy can have significant implications for both your employment status and credit score, but it’s crucial to understand the specific effects in each area. Firstly, it’s important to note that simply filing for bankruptcy does not automatically lead to job loss. Employers are legally prohibited from using your bankruptcy filing as a reason to make negative changes to your employment, such as reducing your salary, demoting you, or terminating your position.

However, it’s important to recognize that legitimate reasons for termination, unrelated to bankruptcy, can still apply. Instances of incompetence, dishonesty, or chronic tardiness may lead to job loss regardless of your bankruptcy filing. If you believe your termination was unjust and directly linked to your bankruptcy, you might have a case against your employer for illegal bankruptcy discrimination.

The level of awareness your employer has about your bankruptcy filing can vary depending on the type of bankruptcy you choose. For instance, in Chapter 7 bankruptcy, your employer might not be aware of your filing in most cases. However, if a creditor has taken legal action and started wage garnishment, your employer will be informed about your bankruptcy as they are required to cease the garnishment.

On the other hand, Chapter 13 bankruptcy might make your employer more aware of your financial situation, especially if you have a steady income. The court may order your payments to be automatically deducted from your wages to ensure adherence to the Chapter 13 repayment plan.

In terms of credit scores, the type of bankruptcy you file also plays a significant role. Chapter 7 bankruptcy, also known as “liquidation” bankruptcy, is suitable for individuals who cannot repay their debts. In this process, some assets may need to be surrendered to contribute to creditor payments. While not all debts may be fully covered, eligible debts will be discharged by the court.

However, Chapter 7 bankruptcy can have a more pronounced negative impact on your credit score, as it remains on your credit report for up to 10 years. Financial institutions perceive individuals who have filed for Chapter 7 as higher credit risks, leading to a more substantial decrease in credit scores, especially for those who had higher scores before filing.

On the other hand, Chapter 13 bankruptcy, also called the “wage earner’s” bankruptcy, involves a repayment plan and is best suited for individuals with regular income. The repayment plan typically spans three to five years. Chapter 13 bankruptcy stays on your credit report for up to seven years, which is shorter than Chapter 7 due to the commitment to repay debts.

Financial institutions may view individuals under Chapter 13 more favorably because of their dedication to repaying their debts. Following a Chapter 13 bankruptcy filing, the credit score may drop by around 150 to 200 points, with a common post-bankruptcy score of approximately 579.

How Does Bankruptcy Affect Your Job and Future Credit	Details
Job Loss and Bankruptcy	Filing for bankruptcy doesn’t automatically lead to job loss; employers can’t discriminate based on bankruptcy, but other valid reasons for termination still apply.
Employer Awareness of Bankruptcy	Chapter 7 bankruptcy might not be noticeable to employers; Chapter 13 bankruptcy may make financial situation more apparent, especially with wage garnishment.
Credit Score Impact of Bankruptcy	Chapter 7 bankruptcy can have a pronounced negative impact on credit score, staying on credit report for up to 10 years. Chapter 13 bankruptcy has a shorter credit report impact, staying for up to seven years; individuals may be viewed more favorably by financial institutions due to commitment to repayment.

Speaking to an Experienced Bankruptcy Attorney in New Jersey

Filing for bankruptcy can give you a new start and allow you to take back control of your finances. You can get help from an experienced bankruptcy attorney to understand which type of bankruptcy is most appropriate for your situation.

A skilled bankruptcy attorney can help guide you throughout the process of filing a bankruptcy. This includes preparing the required paperwork and representing you before the court. You can have your attorney negotiate with creditors in order to stop any harassment you may be facing. A bankruptcy lawyer can also help you create a reasonable payment plan and help you save your home and other assets if your property is being foreclosed. 

At Straffi & Straffi, Attorneys at Law, New Jersey bankruptcy attorney Daniel Straffi and our team of legal professionals has the experience and knowledge needed to help you explore what options are available to you. We may be able to help you protect your assets and the future of your loved ones. You don’t have to wait for it to be too late. Contact us today to schedule a consultation with a top-rated New Jersey bankruptcy attorney. 

from Straffi & Straffi Attorneys at Law https://www.straffilaw.com/do-bankruptcies-show-up-on-background-checks/