Bankruptcy Will Show Up on a Background Check but May Not Hurt You
If you’ve filed for bankruptcy protection in the past, it is likely that your bankruptcy filing will show up on a background check report. However, a bankruptcy filing might not be as harmful to your record and financial history as you think.
A bankruptcy filing could be relatively unimportant, depending on the situation or the person or business who finds the bankruptcy filing. In fact, sometimes having filed for bankruptcy can actually work in your favor. This is because successfully discharging debt through bankruptcy can not only eliminate many debts but also provide protection from creditors and give you a fresh financial start. So depending on the circumstances, you may be considered as better off, and less of a potential risk, than before you filed for bankruptcy.
Will I Pass a Background Check with a Bankruptcy Filing on My Record?
Even with a bankruptcy filing, you can often pass a background check, depending on the circumstances and the purpose for doing the background check. Background checks are most commonly done when applying for a job or because you are applying for credit or a loan.
All bankruptcy cases are filed in special federal courts, so they’re a matter of public record. If you are applying for a job in certain fields, such as the financial industry, and employer may pay a company to do a background check that investigates your financial history. An interested party can also do a search of the federal court system themselves through the Public Access to Court Electronic Records (PACER) system. In general, most other employers do not check financial history as part of a job offer.
Your credit report, which is frequently part of a background check, shows whether you have filed for bankruptcy. How long your bankruptcy filing will stay on your report depends on which type of bankruptcy you filed:
- Chapter 13 bankruptcy is removed from the report seven years from the filing date.
- Chapter 7 bankruptcy is removed from the report 10 years after the filing date.
This removal 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 the bankruptcy filing has been removed from your report. You can get a free report each year, so you can check for any outdated information.
If a bankruptcy filing shows up on your report, the negativity of its impact will greatly depend on the situation and on who’s looking at your record.
Can a Bankruptcy Filing 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 a hiring factor. 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 a 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, however, the situation is more complicated. If your employer is a government agency, it can’t refuse to hire you or fire you if you work there based solely on a bankruptcy filing. If a private employer is involved, the fact that you declared bankruptcy can be a reason to not hire you. But even private, non-governmental employers cannot fire you if you’re a current employee solely because you have filed for bankruptcy or will be filing.
The law specifically addresses government employees and bankruptcy filing in Section 525(a) of the Bankruptcy Code.
Private employers, on the other hand, are governed by section 525(b) of the code. This section prohibits firing employees or discrimination based on bankruptcy but does not actually address denying employment based on a bankruptcy filing.
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. Finally, the type of job could also influence hiring a candidate with a bankruptcy history. For example, if the job involves large financial transactions, employers may be less likely to hire someone who has shown financial hardship.
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). Here’s a brief breakdown on legalities of hiring practices and candidates’ financial information.
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 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 employers are not required to do so. 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.
- That the employer, not the 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. There are many protected classes and legal considerations when choosing not to hire a candidate, including not discriminating against candidates based on their sex, race, color, religion, or because they’re disabled.
How important to an employer is the fact that you filed for bankruptcy? This is likely to depend on the type of job you’re seeking. 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, service industry position, or any other non-financial role.
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. Most landlords will conduct a background check, as they want to ensure that you’ll be a reliable renter who’s able to pay rent monthly or as agreed in your lease. The more recent the bankruptcy 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 to a landlord.
When speaking with a prospective landlord, you may want to mention bankruptcy history. If you can demonstrate that you’ll be able to pay rent, such as by discussing income or savings, it may overcome having a bankruptcy on your record.
A bankruptcy may help you afford the rent payments because, if your previous bankruptcy was discharged, you’ll carry much less debt burden, if any. Finally, 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 cosign 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 or approve you for a credit card. 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’ve 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. While it may seem unexpected, a bankruptcy can help your credit score in the long run, as taking on more and more debt before filing only brings down your credit score. Discharging debt through bankruptcy initially hurts your score but then allows you to rebuild without the debt burden.
Most people are able to obtain a credit card or get a car loan shortly 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, bankruptcy may be your best option. The fact that it probably will show up on a background check shouldn’t prevent you from filing. Continuing to be weighed down by debt is not a viable option, and the bankruptcy process can help you obtain a fresh start.
If you do file for bankruptcy, it’s because you need to do so. A successful bankruptcy can eliminate most consumer debts. Chapter 7 bankruptcy cases are typically over in a few months, so you can then begin rebuilding credit. Chapter 13 bankruptcy 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 and of having bankruptcy show up on your background check.
Contact Us for Trusted Bankruptcy Advice
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 offer options for what you should do next. We can help you decide whether bankruptcy is your best option and can discuss how a bankruptcy filing could affect your credit score and any background checks.
Call us today to schedule your free consultation at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati).
