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Will I Be Able to Get a Job After Bankruptcy? – Erin

Erin

“Dear Steve,

My husband has been out of work for over a year, and my current job does not pay well. So far, we’ve been able to keep up minimum payments on all our bills, but we have student loans and medical bills coming due that we are currently not able to pay. We are considering bankruptcy, but are concerned that having it on our credit report will hurt our chances of getting better-paying jobs.

How often do employers check your credit report, and how significant is a bad credit score when you’re looking for work? Will it prevent us from being hired? Thanks for your help.

Erin”

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The Answer

 

Dear Erin,

I’m afraid that the bankruptcy job fear is mostly a myth that lenders love people to spread to stop them from going bankrupt. Except in certain financial positions, I have rarely seen bankruptcy prevent someone from getting any job, including those that require a security clearance.

In fact, here is what the Air Force says about bankruptcy and a security clearance.

The status of your security clearance can be affected, but it is not automatic. The outcome depends on the circumstances that led up to the bankruptcy and a number of other factors, such as your job performance and relationship with your chain of command. The security section will weigh whether the bankruptcy was caused primarily by an unexpected event, such as medical bills following a serious accident, or by financial irresponsibility. The security section may also consider the recommendations and comments of your chain of command and co-workers. This is an issue that can be argued both ways, so as a practical matter your security clearance probably should not be a significant factor in making your decision about whether to file bankruptcy. The amount of your unpaid debts, by itself, may jeopardize your clearance, even if you don’t file bankruptcy. In that sense, not filing for bankruptcy may make you more of a security risk due to the size of your outstanding debts. By the same token, using a government-approved means of dealing with your debts may actually be viewed as an indication of financial responsibility. Eliminating your debts through bankruptcy may make you less of a security risk.

Once I was standing in front of a credit bureau executive and I asked him what was the big deal with pushing job employment and credit reports. He said, “Steve, it just helps us to sell more credit reports.” His honesty was refreshing.

Those people that might not get a job and who have gone bankrupt, may not get a job for some totally unrelated reason. For people that have been some life altering event that reason might be that they interview horribly.

As someone that once had 70 employees and did probably 400 interviews, I can tell you that when someone came into see me and wanted to launch into some long and drawn out story about their misfortune and why they were the victim in some life situation, I would tune out. But I would have hired all 70 employees if they had been bankrupt.

Credit reports and credit history has no proven relationship to job performance. There was recent study but as was discovered, the underlying premise was flawed to begin with.

There’s a lack of published research that would support the use of credit checks as an indicator of aspects of work performance. One might have said “complete lack” until recently. A study on the relationship between financial history and counterproductive behavior in an unnamed federal agency found a relatively small but statistically significant relationship (?[phi]=.13) between negative financial history (having a bankruptcy, tax lien, court judgment for debt, or six-month delinquency on a debt) and counterproductive work behaviors (cases at the agency involving failure to pay debts, misuse of credit cards and funds, theft, and soliciting or accepting items of value in violation of the law). The agency would not allow analysis for adverse impact. Interestingly, the authors reported that the base rate for counterproductive work behaviors in this agency was 20.6%; an expected base rate would be around 5%. (Reference: Oppler, E.S., Lyons, B.D., Ricks, D.A., and Oppler, S.H. (2008). The relationship between financial history and counterproductive work behavior. International Journal of Selection and Assessment, 16(4), 416-420.) Source

Hawaii, Connecticut, New York, Missouri, and Texas have legislation in the works that would restrict use of credit checks in pre-employment decisions.

I had to go through a pre-employment credit check with IBM after my bankruptcy. I got the job. The only part that sucked was that I knew my manager saw my credit report. Now, looking back on it latter, so what, big deal.

Big Hug!

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Tech1_7

    When applying for a federal job, will bankruptcy hurt my chances of getting hired?

  • Marie

    Marie

    I am so sorry I filed bankruptcy in 2004 in New Jersey.  I lost my job in 2008.  No one in an office will hire me for a desk job.  This has been the worst experience of my life.  I have to change careers or leave the state or country.  If you file bankruptcy say goodbye to a desk job for ten years.

    • http://GetOutOfDebt.org Steve Rhode

      Were you specifically told that the reason you were not hired was because of the bankruptcy? What field are the jobs in?

      • Marie

        No private company will let me near a computer or a cash register.  I worked as a pension processor for 20 years.  I know most of my applications and resumes are ignored because most jobs are bombarded with hundreds of them because so many people are out of work.  I have been applying to any low paying office jobs i can find in new jersey and pennsylvania  (secretary, clerk, mail clerk, etc.) .  I have applied to ten or more temporary agencies none have gotten me any work.  I have applied to federal jobs (clerical not a payroll or financial job) but I am not a veteran or spouse of a veteran so I think that’s why I am not having any luck.  I have taken some civil service test for the state of new jersey.  I have done well on all the test but I didn’t get the highest score so I have to wait to be called for a state job.  I have a bad back so forget about any job where you have to pick up more then 20 pounds.

      • Marie

        California, Connecticut, Hawaii, Illinois, Maryland, Oregon, Washington state and Vermont have passed laws to stop credit checks for most jobs but
        some employers (banks, financial institutions, etc) are exempt from the laws.  I think I might move to one of these states.  Are there any English speaking countries that completely forbid credit checks for employment in 2012?  I know Experian, Equifax and Trans Union are in other countries but is there anywhere on the planet that I could escape this nightmare.   

      • Marie

        No, Xerox refused to hire me for a customer service job after i passed their typing test and two customer service test. Suburban Propane told their temporary company Snelling not to hire me for the customer service job i applied for ( i had applied to both companies unknowningly). Vanguard told their temporary company not to hire me for a pension job i applied for (again i had applied to both companies unknowningly).

    • maria

      you can try getting the bk deleted after 2 years off your credit report. i read somewhere that if you dispute it, it can be done… 

      • http://GetOutOfDebt.org Steve Rhode

        Not a smart thing to do. If you remove accurate information, even if it is negative, and use the credit report you commit credit fraud. There is no sense in having it removed.

      • http://GetOutOfDebt.org Steve Rhode

        Not a smart thing to do. If you remove accurate information, even if it is negative, and use the credit report you commit credit fraud. There is no sense in having it removed.

  • Sapphireyez

    Sadly, bankruptcy IS used in hiring decisions.  I just had a job offer (in a new State I moved to – NY) … and they rescinded the job offer due to my bankruptcy.  I was under the impression this was not legal, but they did it…

    • http://GetOutOfDebt.org Steve Rhode

      What type of job was it for?

  • Hcgreen1

    I had submitted my resume to a firm that contracts with FEMA to do cost estimats for catatrophic loss events that destroys property. I am a cost estimator and have been for over 35 years. This firm seleted me for an initial interview by telephone, after that Interview they invited me to fly at their expense to the home office for a personal interview. I was advised that they would expect me to pass a drug test, a background check and a credit history check. At that point I advised her that I had filed Bankruptsy last year and wondered if this would have a negitive affect on my my hire, she then advised me that I could not be hired due to the bankruptsy since this was a federally funded position. My banckruptsy was caused by my corfporation having to close due to poor economic conditions, which left a debt owed to my bonding company in excess of what I could personally pay. I was under a personal indemnity agreement for the corporation debt. My credit prior to this was practically pristene and I was never in default on loans or creditors either for the corporation or personally. My question is, how can I get around this with the feds?
    Thanks,
    HCG.

  • KJ

    Sorry, Steve.  Simply not true, and you are flatly misleading people by saying otherwise.  As a hiring manager in a variety of roles, and having been a founding partner in two placement companies where we were privy to hundreds of companies hiring policies, bankruptcies can seriously impact your ability to get hired.  It’s not the end of the world, but in fact, it’s sometimes better to have a bad credit rating than a bankruptcy.  P.S. – we did not do business in CA, tho many of our clients did.

    Examples of places we were told by employers flat out not to submit candidates with a bankruptcy in the last 10 years: all financial industry clients, all gaming industry clients, most legal firms, many real estate management firms, firms involved in any kind of security, consulting firms involved with audit activities (even non-financial auditing), cash management jobs at some retailers, most accountant jobs, and several none-of-the-above Fortune 500 companies.

    As an aside, got a call from a friend a couple of weeks ago who had her offer with a “large beverage company” rescinded due to her bankruptcy a couple of years back.  Fizzy water does not like bankruptcies.

    As to a security clearance, it *might* not affect your current clearance, but it can definitely have an impact in your getting one, or getting a higher one should you need it.  And if you actually read that quote from Air Force, they make it very clear that your ability to keep your clearance depends completely on an evaluation of circumstance.  If they decide your reason isn’t good enough, or your performance doesn’t offset, then you loose your clearance.  Lastly, that statement concerns active duty service personnel, so contractors, etc., will not be able to appeal to the chain of command when being evaluated.

    Sure, you can wave your hand over it and say “didn’t get hired for something unrelated to bankruptcy”.  But it’s just as likely they did, and I’m telling you, flat out, there are a lot of companies that seriously consider it.  The FCRA sets the minimum parameters on what an employer can consider from a credit perspective, and your state might have stronger protections, but “don’t worry” is factually the wrong answer.

    • http://GetOutOfDebt.org Steve Rhode

      I stand by the statements in my original answer.

      • KJ

        Which is easy, when you refuse to address facts and delete detailed rebuttals.  Truth is inconvenient when it doesn’t support your agenda.  But, hey…your making money off these people, so, screw them, AmIRight???

      • Justathought

        KJ,

        While what you state in your comment about companies indeed disqualifying new hires, advancement, security clearances etc., based on bankruptcy, your vieww misses the mark when someone cannot pay the debts.

        Nonpayment can lead to judgments which lead to bank levy and garnishment which causes further financial harm and set backs.

        Struggling with debt sucks big time. Finding the right solution to end the struggles can suck too. It is not easy to filter all the different information and opinions out there. Especially when there is logic and truth in much of what one reads.

        Steves point is logical and truthful, but so is yours. Reading either with blanket application to any one persons set of unique circustances would be wrong however.

      • KJ

        How precisely did my comment “miss the mark”?  Steve states that the job impact of bankruptcy is a “myth”.  This isn’t true, which is the only thing I addressed.  Yes, debt sucks and I am well aware of how much of a struggle it is to get out from under it. However, if one goes into bankruptcy taking this “advice” and blithely thinking that there is little or no probability of job impact, then you are making a woefully misinformed decision.

      • http://GetOutOfDebt.org Steve Rhode

        I did not say you missed the mark, what I said was I stood by the statements in my original answer.

      • Justathought

        I read his comment as one delivered to the consumer he is addressing that cannot keep up with bills and will run short on school loans and medical bills in coming weeks.

        In triage you must first stop the bleeding. This fact is what my comment stems from.

      • http://GetOutOfDebt.org Steve Rhode

        I have not deleted anything so let’s get clear on that. With that falls accusation you’ve lost all credibility ion my eyes.

        Your comment presents one view from your position as a hiring manager.

        But faced with unreasonable debt, foreclosure, legal action, judgments, wage garnishments, debt that cat be repaid, living in an unsafe situation, unable to save, etc. what is your advice, to stay away from bankruptcy?

  • Ken

    Will have to move to one of those states you mentioned, because in Florida racial discrimination is illegal but financial profiling is acceptable.

  • Ken

    Will have to move to one of those states you mentioned, because in Florida racial discrimination is illegal but financial profiling is acceptable.

  • Steve Rhode

    I doubt it will come up in an interview but if you do apply for a job that requests you to authorize a credit report you may decide to just share the story upfront.

    It’s really not the fact that someone had problems that creates an issue but that it went unresolved. Even the military looks at bankruptcy as an acceptable form of debt resolution for unmanageable problems.

  • Silverwolf913

    My husband and I are filing a chapter 13 bankruptcy. I am employed but am seeking a better paying job. The bankruptcy is largely due to his bipolar disorder, and resulting addiction to spending (a lot of his spending went on either unbeknownst to me or out of his account, which I couldn’t control. It also came from the income from my second job dropping and just sometimes I got tired of saying no, we don’t need it, I don’t want it, etc.) His spending resulted in being able to give me less towards bills, and because of the weekend income decreasing, I couldn’t keep up with it all.

    That being said, how do I handle this in an interview, knowing that so many employers do potential credit checks? I thought I might say that my husband has a medical issue that got us into some trouble. Our income is more stable now, and we are able to deal with the current bills, just not sure of how to deal with the past. Can they legally ask me for more detail than that? What on earth do I tell them? I just don’t know how to phrase this in the least negative way.

  • Silverwolf913

    My husband and I are filing a chapter 13 bankruptcy. I am employed but am seeking a better paying job. The bankruptcy is largely due to his bipolar disorder, and resulting addiction to spending (a lot of his spending went on either unbeknownst to me or out of his account, which I couldn’t control. It also came from the income from my second job dropping and just sometimes I got tired of saying no, we don’t need it, I don’t want it, etc.) His spending resulted in being able to give me less towards bills, and because of the weekend income decreasing, I couldn’t keep up with it all.

    That being said, how do I handle this in an interview, knowing that so many employers do potential credit checks? I thought I might say that my husband has a medical issue that got us into some trouble. Our income is more stable now, and we are able to deal with the current bills, just not sure of how to deal with the past. Can they legally ask me for more detail than that? What on earth do I tell them? I just don’t know how to phrase this in the least negative way.

    • http://GetOutOfDebt.org Steve Rhode

      I doubt it will come up in an interview but if you do apply for a job that requests you to authorize a credit report you may decide to just share the story upfront.

      It’s really not the fact that someone had problems that creates an issue but that it went unresolved. Even the military looks at bankruptcy as an acceptable form of debt resolution for unmanageable problems.

  • Fred

    Hi Steve, I am considering doing a ch 7 here in GA due to income loss and CC debt. I have a house that has a short sale contract on it (waiting for bank approval) if I file will that affect short sale transaction?

    • http://GetOutOfDebt.org Steve Rhode

      Fred,

      You might want to discuss this with your bankruptcy attorney. A short sale can result in a deficiency and that should be included in your bankruptcy to discharge it.

      Steve

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