Bankruptcy Will Show Up on a Background Check, but May Not Hurt You
If you’ve filed for bankruptcy protection in the past, there’s a good chance your bankruptcy filing will show up on a background check report. However, this may not be as harmful as you might think.
What will be done with that information depends on the situation, person, or business seeking the information. In fact, sometimes having filed for bankruptcy can actually work in your favor. This is because a correctly filed bankruptcy can eliminate many debts, provide protection from creditors, and give you a fresh financial start. So depending, on the circumstances, you may be considered a better risk than you were before you filed.
Will I Pass a Background Check with a Bankruptcy?
Even with a bankruptcy, you can pass a background check, depending on the circumstances and the purpose for doing the background check. Background checks are most commonly done because you are applying for a job or because you are applying for credit or a loan.
Bankruptcy cases are filed in special federal courts, so they’re a matter of public record. If an interested party is checking on you, they will probably pay a company to do a background check that provides that information. They can also do a search of the federal court system themselves through the Public Access to Court Electronic Records (PACER) system if they know how to use it, pay its fees, and spend the time searching it.
Your credit report, which is frequently part of a background check, is what shows whether you have filed for bankruptcy. How long your bankruptcy filing will stay on your report depends on which chapter of the bankruptcy code you used:
- Chapter 13 bankruptcy is removed from the report seven years from the filing date.
- Chapter 7 bankruptcy is removed from the report ten years after the filing date.
This should happen automatically, according to Experian (which sells credit reports), but if your bankruptcy was filed at least seven years ago, you should get a free credit report to make sure that information’s no longer reported. You can get a free report each year so you can look for and try to remove false or outdated information.
While your bankruptcy will show up on the background check, whether it has a negative impact or not depends on the situation.
Can a Bankruptcy on My Background Check Hurt My Ability to Get a Job?
Depending on the type of job you are applying for, an employer could use your bankruptcy filing as relevant information on your application. Most employers use this information as just one factor in hiring decisions, so filing for bankruptcy most likely would not automatically prevent you from getting the job or keeping it.
If you are already employed, the U.S. Bankruptcy Code prevents employers from firing you just because you have filed for bankruptcy. If you are seeking a job, the situation is more complicated. If the employer is a government agency, it can’t refuse to hire you or fire you if you work there, based on a bankruptcy filing. If a private employer is involved, the fact that you declared bankruptcy can be a reason not to hire you, but not to fire you if you’re a current employee.
Section 525(a) of the Bankruptcy Code deals with government employers and states:
“a governmental unit may not . . . 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 [Title 11] or a bankrupt or a debtor under the Bankruptcy Act.”
Private employers, on the other hand, are governed by section 525(b). This section prohibits firing employees or discrimination based on bankruptcy, but does not actually address denying employment based on a bankruptcy filing. The majority of cases brought before the courts have held that private employers are not liable for a denial of employment under this section of the bankruptcy code.
However, while an employer has the right to deny you a job because of a bankruptcy, it does not mean that an employer will deny you the job. There are many factors that go into making an employment decision, such as your experience, personal recommendations, education, and the nature of the job.
Bankruptcy Information and the FCRA
If someone who is hiring runs a background check and discovers a past bankruptcy filing, what can they legally do with that information? The Federal Trade Commission (FTC) enforces the Fair Credit Reporting Act (FCRA). It’s not illegal to gather financial information on job candidates, but which decisions are made based on that information may be illegal under FCRA, depending on the circumstances.
The FCRA requires an employer to do the following before it compiles financial information on job applicants:
- The applicant must be informed in writing that the employer might use the information for decisions about your employment.
- This notice must be separate from the job application.
- The applicant must give written permission to do the background check. If you refuse, the employer can decide not to hire you.
If the employer decides not to hire you based on background information it obtained through a company that provides background checks, under FCRA it must first give you:
- A notice, including a copy of the report it relied upon to make the decision
- A copy of “A Summary of Your Rights Under the Fair Credit Reporting Act”.
Ideally, you should be given a chance to review the report and explain any negative information, like a bankruptcy, to try to save this job opportunity, but it’s not required. The employer must tell you:
- You weren’t hired because of the report’s information.
- The name, address, and telephone number of the company selling the report.
- The employer, not that credit reporting company, made the hiring decision.
You have a right to dispute the report’s contents and get an additional free report from the reporting company in 60 days.
If an employer screens candidates by this method, it must do so uniformly. It would be illegal employment discrimination to do so with candidates based on their sex, race, color, religion, or because they’re disabled.
How important to an employer is the fact that you filed bankruptcy? This is likely to depend on the type of job you’re seeking, as well as your qualifications. A bankruptcy may be more important to an employer who is hiring you in a fiduciary role than it is to someone who is hiring you for a factory, retail or service industry position.
Can a Bankruptcy on My Background Check Hurt My Ability to Rent a Home?
A Past Bankruptcy May or May Not Concern a Landlord
If you want to rent a home, a landlord could use bankruptcy information when deciding whether or not to rent to you. The more recent the filing, the more reluctant the landlord might be. If the filing was two or more years ago, your financial record is good, and you do not have a significant eviction history, it may not matter.
When you discuss renting with the landlord and they mention a background or credit check, it may be best to bring up your bankruptcy, so it won’t be a surprise. If you can show things to demonstrate that you’ll be able to pay rent, it may overcome having a bankruptcy on your record.
A sensible landlord will be more concerned about your income and ability to pay rent than they are about a bankruptcy you had in the past. A bankruptcy may help you afford the rent payments, because it will relieve you of many other debts or obligations. If you can show you’ve paid rent when you’ve had financial trouble in the past, the landlord may be more open-minded because you’ve made it a priority.
If this becomes an issue you could:
- Find a landlord less concerned about your credit history
- Offer a larger security deposit if you can afford it
- Provide references
- Find someone willing to co-sign for the rent obligation.
Will a Background Check for Bankruptcy Affect Ability to Get Credit and Loans?
Banks, mortgage lenders and other financial institutions ordinarily pull your credit score when deciding whether to lend you money for a house or car and whether to approve you for a credit card. A higher credit score, as calculated by one of three credit reporting agencies in the United States, is an indicator of your personal credit worthiness. Your score is based on your past behavior with credit, your likelihood of promptly paying debt, and your years of experience with handling consumer debt, including whether you filed for bankruptcy.
Bankruptcy does affect your credit score, but while filing for bankruptcy can initially lower your credit score, wiping out your debt will help raise your credit score over the long term. Most people are able to open a credit card or get a car loan right after filing for bankruptcy, although rates may be higher, and many are able to get a home loan in two to three years after their bankruptcy.
Will a Background Check Show a Bankruptcy, and Should I Still File?
If you’re in severe financial trouble and bankruptcy is your best option, the fact that it probably will show up on a background check shouldn’t prevent you from filing.
If you do file for bankruptcy, it’s because you need to do so. A successful bankruptcy can eliminate most consumer debts and allow you to have a fresh financial start. Chapter 7 is over in a few months, so you can then begin rebuilding credit. Chapter 13 allows you to consolidate payments to repay some or all of your debt affordably over a three- to five-year period, while saving assets such as a home or a vehicle
Bankruptcy filings are generally only one factor when employers, landlords, or financial institutions are reviewing an application. Being in a stronger financial position and having financial freedom will generally outweigh the potential consequences of filing.
Contact Us and Get Help
Everyone’s situation is unique, so the seasoned and compassionate Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer offer a free consultation to help you evaluate your financial situation and give you options about what you should do next. Whether or not bankruptcy is for you, we will discuss the necessary steps for you to take that will lead to a brighter future.
Delaying may worsen your situation, so call Fesenmyer Cousino Weinzimmer today. Call us today to schedule your free consultation at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati).