Bankruptcy and Discrimination


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Federal law prohibits the government, agencies of government and private employers discriminating against debtors.

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Private employers and the government cannot discriminate against anyone who is:

  • A debtor was/is
  • Was/is insolvent to pay any debts prior to or during bankruptcy proceedings
  • Is not able to pay a bankruptcy debt
  • History of Bankruptcy Discrimination

The U.S. Constitution gives the federal government the power of setting bankruptcy laws and managing bankruptcy proceedings. Bankruptcy proceedings are conducted in federal bankruptcy courts. The law on bankruptcy tends to be the same across all 50 states. This means that bankruptcy law can be brought up before the U.S. Supreme Court or U.S. Court of Appeals.

1971 saw the creation of federal laws that prohibit discrimination in bankruptcy. The U.S. Supreme Court decided the case Perez v. Campbell in 1971.

Perez stated that a state cannot deny a driver’s licence to a person because of an unpaid bankruptcy court judgment. They won the case.

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Perez v. Campbell prompted Congress to create federal law at 11 U.S.C. Section 525. This law prohibits discrimination by government or private employers based on bankruptcy.

Discrimination by the Government During Bankruptcy

Federal bankruptcy laws prohibit discrimination. These laws prohibit government discrimination against bankruptcy debtors in the following ways:

  • Due to bankruptcy, a debtor can be repaid

When hiring, discriminating

Refusing, suspending, canceling or revoking any licenses, franchises or other privileges due to bankruptcy

  • Refusing to accept a grant from the government because of bankruptcy
  • On a grant application, list certain conditions that relate to bankruptcy
  • This ban has been broadly interpreted by courts.

The same provision in the United States Code states that the government cannot discriminate against any person associated with a bankruptcy debtor. This protection can extend to family members and business partners of bankruptcy debtors.

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What happens if an employer fires someone in bankruptcy?

Private employers cannot discriminate against bankruptcy creditors. Private employers are also prohibited from discriminating against bankruptcy debtors under the same federal statute.

These bans include:

  • Fire an employee due to bankruptcy
  • Refusing to hire an employee due to bankruptcy
  • Discrimination against the debtor’s friends or family
  • This means you and your friends cannot be subject to discrimination in the workplace based upon your bankruptcy.
  • Are you being discriminated against because of your bankruptcy filings?

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You should speak with an attorney who specializes in employment discrimination cases if you believe the government or employer fired or refused to hire you.


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