The bankruptcy code contains safeguards to ensure that those who register for bankruptcy are not discriminated against because of their bankruptcy filing. The majority of these safeguards can be found in section 525 of the bankruptcy code. In general, section 525 protects individuals from discrimination by governmental entities and private employers. Therefore, let's dig a little deeper and determine what protections there are against discrimination for bankruptcy filers.
Sections 525(a) and © of the Bankruptcy Code discuss governmental entities, so let's begin with them. These code sections contain a great deal of language, but they prohibit a governmental unit from denying a person, or someone associated with that person, employment, a license, a grant, or a student loan because they have filed for bankruptcy, been insolvent prior to filing for bankruptcy, or failed to pay a discharged debt. The discriminatory action must be """"solely because"""" of the bankruptcy, insolvency, or failure to pay discharged debt. Some courts have interpreted this literally, meaning that the bankruptcy must be the sole reason for the discriminatory action in order for this section's protections to apply. Other courts have interpreted this phrase more expansively. Nonetheless, section 525(a) will likely not be violated if anyone, regardless of bankruptcy, would have been treated the same way in that situation. As long as everyone, regardless of whether they have filed bankruptcy or not, is required to maintain car insurance prior to obtaining a driver's license, it would not be considered discrimination if you are unable to obtain car insurance due to your bankruptcy-related poor credit and therefore cannot obtain a license to drive your car.
A private employer cannot terminate an employee solely for having filed for bankruptcy. In addition, section 525(b) has been held to prohibit denying a person promotions, regular raises to which they would otherwise be entitled, or other benefits solely because they have filed for bankruptcy. The same issue with the use of ""only because"" applies here. Some courts interpret this language strictly, while others are more lenient. An additional intriguing aspect of private employer discrimination against bankruptcy debtors is that section 525(b) has been interpreted as requiring the existence of an employment relationship between the discriminator and the bankruptcy debtor. Therefore, if a person is an independent contractor, section 525(b) may not afford them protection.
This has been a very brief summary of the anti-discrimination protections afforded to individuals under Section 525 of the Bankruptcy Code. Please visit the links below to access a three-part series on my blog that delves into these issues in greater depth.
Remember, if you believe you have been discriminated against because of a bankruptcy filing or financial insolvency, you should contact a qualified attorney immediately. This article is not legal advice because it is not directed at a specific individual and it is not tailored to a particular set of facts. A competent attorney can sit down with you and apply the law to your specific circumstances.
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