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Protection Against Discriminatory Treatment After Filing For Relief Under The Bankruptcy Code

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Protection Against Discriminatory Treatment After Filing For Relief Under The Bankruptcy Code

Many individuals struggling with debt often do not explore the option of seeking financial relief under the U.S. Bankruptcy Code out of fear of losing a job or discriminatory treatment by an employer. The Bankruptcy Code offers not only tremendous debt relief to those facing financial hardship but also offers far reaching protections against retaliatory actions by employers. In this article we discuss the Bankruptcy Code and implications.

Section 525 of the Bankruptcy Code provides:

(a) Except as provided in the Perishable Agricultural Commodities Act, 1930 , the Packers and Stockyards Act, 1921, and section 1 of the Act entitled "An Act making appropriations for the Department of Agriculture for the fiscal year ending June 30, 1944, and for other purposes," approved July 12, 1943, a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.

(b) No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt--
(1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;
(2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or
(3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.

(c)
(1) A governmental unit that operates a student grant or loan program and a person engaged in a business that includes the making of loans guaranteed or insured under a student loan program may not deny a student grant, loan, loan guarantee, or loan insurance to a person that is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, or another person with whom the debtor or bankrupt has been associated, because the debtor or bankrupt is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of a case under this title or during the pendency of the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.
(2) In this section, "student loan program" means any program operated under title IV of the Higher Education Act of 1965 or a similar program operated under State or local law.

This section of the Bankruptcy Code prohibits employers from demoting or transferring an employee because they sought debt relief under the Code. The anti-discriminatory protections extend to private and government employees. The protections also extend to matters including but not limited to: utility services, promotions, and transfers. Utility companies cannot deny services because if a bankruptcy filing but they can require a security deposit. See In re Heard, 84 B.R. 454 (Bankr. W.D. Tex. 1987). An employer cannot demote someone that routinely works with the public to a position that requires zero contact with the public. See In re Hicks, 65 BR 980 (Bankr. W.D. Penn. 1986). Additionally, an employee cannot be fired because an employer may be potentially embarrassed by the employee’s filing. See In re Hopkins, 66 B.R. 828 (Bankr. W.D. Ark. 1986) .

Businesses that reorganize under chapter 11 of the Bankruptcy Code also are protected under Section 525 from being denied licenses and permits. The U.S. Supreme Court has determined that a state could not revoke a license if a business fails to make an installment payments. See FCC v. NextWave Personal Communs. Inc., 537 U.S. 293 (2003). Some courts have extended the prohibition on revoking a license to prohibiting a state from denying a license because of a bankruptcy filing. See In re Island Club Marina, Ltd., 38 B.R. 847 (Bankr. N.D. Ill. 1984) and In re Fintel, 10 B.R. 50 (Bankr. D. Or. 1981). States also cannot require repayment of dischargeable, or discharged, debt a condition for a business or individual to maintain or reinstate professional license. See In re Borowski, 216 B.R. 922 (Bankr. E.D. Mich. 1998) and In re Fasse, 40 B.R. 198 (Bankr. D. Colo. 1984).

The protections against discriminatory treatment after filing for bankruptcy extends to small business working with state and federal government agencies. Business cannot have service contracts terminated or be prohibited from bidding for work solely because the business filed bankruptcy. See In re Son-Shine Grading, Inc., 27 B.R. 693 (Bankr. E.D.N.C. 1983) and In re Exquisito Services, Inc., 823 F.2d 151 (5th Cir. 1987).

The relief available to employees that have been discriminated against is broad and decided by bankruptcy judges. Bankruptcy judges are able to adjudicate claims of discrimination by private and government employers, and government agencies involved in licensing matters. A powerful provision in the Bankruptcy Code, provides;

The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process. 11 USC § 105(a).

Bankruptcy Courts have interpreted this provision to allow judges to award back pay and employment reinstatement. See Robinette v. WESTconsin Credit Union, 686 F. Supp. 2d 1206 (W.D. Wis. 2010) and In re Hopkins, 66 B.R. 828 (Bankr. W.D. Ark. 1986). It follows that a judge would be able to order an employer to re-promote an employee or undo a transfer.

As demonstrated by the information above, you should not be discouraged from considering a bankruptcy filing as the best debt relief option out of fear of problems with an employer or even a professional licensing board.

McKenna Storer is a debt relief agency. We help people file for bankruptcy under the bankruptcy code. Contact Jaine Dowell for questions about the U.S. Bankruptcy Code or any other debt relief questions or concerns.

If you found value in this article, you may also wish to read our other bankruptcy related posts or download our free Bankruptcy Checklist.

Legal Advertisement: This content is provided for informational purposes only and is not intended as legal advice. McKenna Storer is not liable for any actions taken on the information provided and is not liable for any errors or omissions.

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