Bankruptcy Law Prohibits Discrimination

The Bankruptcy Code includes anti-discrimination sections prohibiting discrimination against a debtor who files for bankruptcy.  The Bankruptcy Code was enacted to help the honest debtor in need of a fresh start. The Code would not be able to provide the fresh start to debtors if filing for bankruptcy would cause debtors to be discriminated against.  In this case, no one would ever file for bankruptcy.

Bankruptcy Code § 525 prevents three type of discrimination.  The first type of discrimination prohibited is governmental discrimination in areas including licenses, permits and public employment.   Federal and state government cannot discriminate or deprive an applicant of a license or permit, or hire or fire an employee solely on the basis that the applicant or employee filed for bankruptcy, was insolvent before the bankruptcy or during the bankruptcy, or because the debtor has not paid a debt that was dischargeable in the bankruptcy proceeding.  The exceptions are the extension of or guarantee of new credit, and the denial or revocation of a license based on public safety concerns.  The Code does not prevent discrimination in these discrete situations.

The Bankruptcy Code also prevents employment discrimination by private employers.  The Code clearly prevents an employer from making adverse employment discriminations against current employees on the basis of bankruptcy filings.  The law is slightly less clear on how employers must treat potential future employees who have filed for bankruptcy.

The Bankruptcy Code is clear on discrimination in student loans.  The Code prevents both the government and private employees from denying student loans to students who have filed for bankruptcy, were insolvent before filing for bankruptcy or during the bankruptcy proceeding, or for debtors who have not paid a debt that was dischargeable in a bankruptcy proceeding.

In any case, if the government or a private employer can present legitimate reasons other than the bankruptcy filing for issuing the adverse decision, the applicant or employee may have a difficult time taking advantage of the bankruptcy protection against discrimination.