Is There Protection From Discrimination For Bankruptcy Filers?

Samuel J Warden
January 3, 2012 — 945 views  
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People worry about filing bankruptcy. They worry about their financial futures, they worry about their future credit, they worry about how much of their stuff they can keep and what they will lose, and not least of all they worry a lot about what other people will think of them if they file bankruptcy. There is still a stigma associated with filing bankruptcy. Unfortunately that stigma can manifest itself in discrimination against people who have had to go through a bankruptcy. This should not be the case, and is contrary to what Congress intended the bankruptcy code to be about. Bankruptcy is about fresh starts, and future financial security, and discrimination should not prevent a person from taking full advantage of the fresh start bankruptcy offers.

There are protections under the bankruptcy code to make sure anyone who files bankruptcy is not discriminated against because of their bankruptcy filing. Most of these protections are found under section 525 of the bankruptcy code. Generally, section 525 provides protection against discrimination from governmental units, and private employers. So lets look a little deeper and find out what protections there are against discrimination for people filing bankruptcy.

Lets start with the governmental units, which sections 525(a) and (c) of the bankruptcy code talk about. There is a lot of language in those code sections, but very basically they forbid a governmental unit from denying a person, or someone associated with that person, employment, a license, a grant, or a student loan because they have filed bankruptcy, been insolvent before a bankruptcy, or failed to pay a discharged debt. Some important language in section 525(a) is that the discriminatory action has to be "solely because" of the bankruptcy, insolvency, or failure to pay a discharged debt. Some courts have found this to be interpreted literally, meaning the bankruptcy must be the only reason for the discriminatory action for the protection under this section to apply. Other courts have found that phrase to be interpreted more liberally. Bottom line though, if anyone, regardless of a bankruptcy would have been treated the same way in that situation, then there will probably be no violation of section 525(a). For example if you have to maintain car insurance to get a license to drive, and you cannot get car insurance because of your bad credit due to a bankruptcy, and therefore you cannot get a license to drive your car, that would not be discrimination, as long as everyone regardless of whether they have filed bankruptcy or not is required to have car insurance before getting a license to drive.

A private employer can also not fire a person solely because they have filed bankruptcy. Not only that, but section 525(b) has been held to require that a person not be denied promotions, regular raises they would be otherwise entitled to, or other benefits solely because they have filed bankruptcy. The same issue with that "solely because" language applies here. Some courts look at that language strictly, and others more liberally. Another interesting issue regarding private employer discrimination against bankruptcy debtors, is that section 525(b) has been held to require that an employment relationship exist between the person discriminating against the bankruptcy debtor. So, if someone is an independent contractor then section 525(b) may not protect them.

This has been a very quick overview of the protections from discrimination afforded to people under section 525 of the bankruptcy code. For a more in depth discussion please visit the links below where my blog has a three part series going into more detail on these issues.

Remember, if you think you may have been discriminated against because of a bankruptcy filing, or your financial insolvency, contact a qualified attorney as soon as possible. This article is not legal advice as it is not directed at any particular person, and it is not applied to any particular factual situation. A qualified attorney can sit down with you and apply the law to your particular facts.

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DISCLAIMERS: Ohio law governing attorneys and attorney advertisements require me to advise that this article is an "ADVERTISEMENT ONLY" and is not legal advice, is intended for general informational purposes only, is directed to the general public and not directed at any particular person, group of persons, or entity.

By an act of Congress I have been designated a debt relief agency, and I help people file for bankruptcy under the bankruptcy code.

Samuel Warden is a Bankruptcy Attorney in Mason Ohio, and has written several blog posts on protections against discrimination for bankruptcy debtors. Please read his three part series on Bankruptcy Discrimination, and his post on Utility Company Bankruptcy Discrimination.

DISCLAIMERS: Ohio law governing attorneys and attorney advertisements require me to advise that this article is an "ADVERTISEMENT ONLY" and is not legal advice, is intended for general informational purposes only, is directed to the general public and not directed at any particular person, group of persons, or entity.

By an act of Congress I have been designated a debt relief agency, and I help people file for bankruptcy under the bankruptcy code.

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Samuel J Warden