Background Checks & Bankruptcy

As if the stress of filing and completing bankruptcy isn't enough, a bankruptcy can become an issue during background checks. However, depending on the reason for the inquiry and the financial circumstances that led to your insolvency, a bankruptcy may not harm your chances of getting a job, security clearance or a place to live.

Bankruptcy is a matter of public record, and consumer credit bureaus, background report companies and tenant-screening services regularly comb court records for this information. If you've filed for bankruptcy, it will show up on a background check. However, the federal Fair Debt Reporting Act (FDRA) restricts the length of time that consumer reporting services can list this information on a report to ten years in most cases. Exceptions to this rule include background checks run for jobs that pay more than $75,000 per year or for loans for more than $150,000; credit bureaus don't have to remove old negative information for these reports. If you file for Chapter 13 bankruptcy, some credit bureaus remove your bankruptcy listing after seven years.

It is a violation of the federal bankruptcy code for an employer to discriminate against a job applicant or employee just because she filed for bankruptcy. Unfortunately, it is perfectly legal for a company to refuse to hire or promote someone because of other negative credit information. If your credit report contains information about past due accounts, charge-offs or judgements, an employer can use this information against you.

If you have, or want, a job in which you will be privy to sensitive information, you'll need a security clearance. During the security clearance process, you'll be asked a number of questions about your financial situation, including about bankruptcy. Military and government agencies are concerned about financially stressed employees because these employees may be more susceptible to bribery attempts from foreign and internal enemies. If you've ever filed for bankruptcy and need a security clearance, be prepared to explain its circumstances as well as what you've done to improve your situation.

The FCRA requires prospective employers to get your permission before running a credit or background check. If an employer or property management company uses background or credit information to take an “adverse action” against you, such as withdrawing an offer of employment or rejecting your tenant application, you must be told why. You must also be told the name of the company providing the information. You then have a right to a free copy of your report from the company if you make your request within 60 days of the adverse action.