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Advocates Want to Ban Employers from Using Credit Checks in Hiring


One fear many consumers have about filing for bankruptcy is the possibility that a future employer might find out about it. This fear is well-grounded. One survey found that around 30% of employers did a credit check on job applicants, and a bankruptcy will show up.

According to a news story published on Fox Business, many consumer advocacy groups are trying to change that. They believe that filing for bankruptcy bears little relevance on whether a job applicant can perform a job. With so many people now looking for work after losing jobs in the COVID-19 pandemic, limiting or prohibiting the use of credit checks could help many find jobs.

Bankruptcy is Not Rare

Whether employers can use a bankruptcy filing in a job decision matters to millions of people. One academic study found that about 3.6% of the adult population has filed for bankruptcy in the past decade. Economic crises, like the current one, also send hundreds of thousands of people to the bankruptcy courts.

Currently, the law prevents public sector employees from considering bankruptcy. This means if you apply for a federal, state, or local job, the employer cannot consider the fact. However, the law allows private sector employers, who provide about 8 out of 10 jobs.

About 10 states have passed restrictions on the use of credit checks, and some large cities (like NYC) have followed suit. But Florida’s private sector employers can use credit checks—and do.

Landing in the “rejection” pile because of a bankruptcy robs millions of people of the chance to earn a living. If anything, the practice simply increases the economic stress that people feel. Consequently, many consumer advocates are pushing to prohibit employers from considering a bankruptcy filing when staffing a position. And they are finding advocates in Congress.

Is a Bankruptcy Relevant?

Some business advocates believe that employers are behaving rationally when they run a credit check. After all, many employees handle money, and an employer wants to know whether the person is trustworthy.

However, others point out that filing for bankruptcy can actually make someone less likely to commit fraud. The bankruptcy should have eliminated most of a person’s debts, which reduces the temptation to steal.

Representative Katie Porter of California believes that most bankruptcies stem from job losses or health scares and not financial mismanagement. Therefore, filing for bankruptcy protection should have no bearing on whether an applicant is trustworthy or able to perform a job.

Legal Challenges Turned Aside

The Fox Business story mentions that the ability of an employer to consider bankruptcy has been challenged before. After the Great Recession, many disappointed job applicants filed lawsuits asking judges to make the practice illegal. However, the federal courts were unsympathetic, so it is up to Congress to prohibit the practice.

And there has been some movement. The House of Representatives recently passed legislation to limit the use of credit history in employment decisions. But the Senate (in the hands of the Republican Party) has not taken up the legislation.

Contact Nowack & Olson Today

Our Plantation bankruptcy attorneys at Nowack & Olson, PLLC can discuss the risks of filing for bankruptcy and handle the process should you decide to go forward. Call us today at 888-813-4737 to schedule a free consultation.




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