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Do Bankruptcies Show Up on Background Checks? What Employers Need to Know


One of the most common questions employers have is whether bankruptcies will show up on background checks.

This is especially true for employers that are hiring for positions involving access to sensitive financial information. Past financial issues might indicate that an applicant is financially distressed and could be at an increased risk of committing acts of theft and fraud.

This article explores the answer to this question and provides valuable information for employers.

What is Bankruptcy?

Bankruptcy is a legal tool available to individuals and businesses that are unable to repay their debts.

Through the bankruptcy process, individual or business debtors can obtain a fresh start, and creditors can recover a portion of what they are owed from the bankruptcy estate or reorganization plan.

While most types of unsecured debt can be discharged through bankruptcy, certain priority debts are non-dischargeable and must be fully repaid.

Under 11 U.S.C. § 523, the following are some examples of non-dischargeable debts:

  • Alimony
  • Child support
  • Most types of tax obligations
  • Student loans
  • Criminal restitution
  • Debts from personal injury lawsuits when the debtor was drinking and driving

Common Causes of Bankruptcy

Many situations can lead people to bad financial circumstances. The most common causes of bankruptcy include unexpected injuries or illnesses leading to substantial medical expenses, job losses, and divorce.

Other common factors that can lead to bankruptcy include poor spending habits, property damage, and extensive losses caused by natural disasters.

Types of Bankruptcy

In Title 11 of the U.S. Bankruptcy Code, the following six types of bankruptcy are outlined:

Let’s take a look at the most common types of personal and business bankruptcies.

Personal Bankruptcy

Chapter 7 Bankruptcy

From 2006 to 2017, Chapter 7 filings accounted for 68% of all personal bankruptcy cases.

Chapter 7 bankruptcy for individuals is a liquidation bankruptcy. In this type of bankruptcy, an individual’s non-exempt assets are seized and sold by the assigned trustee.

To file for personal bankruptcy under Chapter 7, the debtor must pass the means test, which means their income is insufficient to repay their debts.

There are exemptions allowed under federal and state law through which debtors can exempt certain assets up to a specified amount from inclusion in the bankruptcy estate. Debtors must choose either federal or state exemptions and cannot claim both.

Any non-exempt asset will be liquidated or sold by the trustee to satisfy a portion of the debts owed to the creditors. The remaining non-priority unsecured debt will be discharged at the closure of the bankruptcy case, which typically occurs around four months after filing.

Since people who file for Chapter 7 bankruptcy typically do not have sufficient assets to repay creditors, unsecured creditors often receive very little to satisfy what they’re owed.

Once an unsecured debt is discharged, the debtor will no longer be legally obligated to repay it.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is the second-most common type of personal bankruptcy.

Instead of liquidation, debtors are allowed to keep their property while reorganizing their debts through a repayment plan that lasts from three to five years.

This type of bankruptcy can be used by eligible debtors to stop foreclosures and repossessions and to catch up on back payments during the life of the repayment plan.

At the end of the repayment plan, the remaining unsecured debt balances will be discharged.

Individuals must qualify to file for Chapter 13 bankruptcy. They must earn regular wages that are enough to make their repayment plan payments and owe less than $419,275 in total unsecured debt and $1,257,850 in secured debt.

If a debtor is no longer able to make their payments under the payment plan, a Chapter 13 case can be converted to a Chapter 7.

Business Bankruptcy

Businesses can file for bankruptcy under Chapters 7, 11, or 13 of the U.S. Bankruptcy Code.

Chapter 7 Business Bankruptcy

Businesses might choose to file for Chapter 7 business bankruptcy if they are unable to repay their debts and are going out of business.

All of the business’s assets will be liquidated by the bankruptcy trustee to repay a portion of what the business owes to its creditors.

The remaining debts are typically written off by creditors at the close of the bankruptcy case, and the business will no longer be able to operate.

Chapter 11 Business Bankruptcy

Chapter 11 is a reorganization bankruptcy for businesses. Business debtors that file for Chapter 11 bankruptcy can continue operating their companies and reorganize their debts.

Businesses that file for Chapter 11 bankruptcy restructure their debts through a proposed reorganization plan. The business’s creditors must approve of the plan submitted by the business.

If a plan can’t be approved, or the business fails to meet its obligations during the reorganization plan period, the court can convert the case to Chapter 7 and liquidate the business’s assets.

Chapter 13 Business Bankruptcy

Small business owners can file for Chapter 13 bankruptcy to reorganize their debts if they don’t want to liquidate their businesses and cease operations.

During the repayment plan, the small business will be allowed to keep its assets while making payments on its debt obligations according to the court-approved repayment plan.

Do Bankruptcies Show Up on Background Checks?

Whether an applicant’s bankruptcy shows up on a pre-employment screening depends on the types of background checks you conduct.

Credit Checks

Subject to certain restrictions under state and federal law, some employers might run credit checks after obtaining the applicant’s consent.

For example, if you are hiring for a position in which an applicant will have access to sensitive information and your company’s money, you might choose to perform a credit check.

This type of background check will reveal past bankruptcies within the past seven or 10 years.

Federal Bankruptcy Court Checks

Federal bankruptcy court searches will reveal bankruptcies filed within the past seven to 10 years, depending on the bankruptcy chapter.

A Chapter 13 bankruptcy can be reported for a maximum of seven years, and a Chapter 7 bankruptcy can be reported for up to 10 years.

A bankruptcy search in the federal bankruptcy courts can show the following information:

  • Filing date
  • Case number
  • Petitioners’ names
  • Discharge date

Under federal law, government employers are prohibited from discriminating against someone based on their filing for bankruptcy or denying them employment.

This means that local, state, and federal employers can’t reject an applicant solely based on a past bankruptcy case.

By contrast, private employers can consider previous bankruptcies when they make hiring decisions.

Criminal Background Checks

Criminal background checks reveal information about an applicant’s pending criminal cases and misdemeanor or felony convictions.

Since a bankruptcy case is not a criminal matter, it won’t show up on a criminal background check.

Bankruptcies are filed in the U.S. Bankruptcy Courts, which is a type of court within the federal civil court system.

Filing for bankruptcy is not a crime and is not filed in criminal court, so a bankruptcy case won’t appear on a criminal background check.

Civil Court Background Checks

What might show up on a civil court background check is regulated by federal and state laws. Civil court background checks are meant to show civil court records at the local or federal levels.

Some of the types of information that might show up in a civil court background can include things like civil lawsuits, judgments, estate disputes, personal injury cases, and others.

However, bankruptcies occur in a specialized federal court and will not appear in civil court background checks.

Employment Verification

Employment verification shows the past employment record of applicants, including their employment dates, the employers for which they have worked, and their past positions and titles.

Former employers might also be contacted to learn about an applicant’s past performance.

An employment verification check will not report a bankruptcy case.

Education Verification

Education verification reports an applicant’s level of educational attainment and includes information about the institutions attended, the applicant’s attendance dates, and any diplomas or degrees that were conferred.

Education verification will not reveal a past bankruptcy case.

Laws on Reporting Bankruptcies on Employment Background Checks

Federal Laws

Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) protects the privacy of consumers in the information that is collected, held, and reported by consumer reporting agencies (CRAs), including background check providers.

Under 15 U.S. Code § 1681c, the FCRA restricts the reporting of the following information to employers that are hiring for jobs with annual salaries under $75,000 when the information is older than seven years:

  • Paid tax liens
  • Civil lawsuits
  • Civil judgments
  • Chapter 13 bankruptcies (Chapter 7 bankruptcies can be reported for 10 years)

This means that in most cases, employers will not see bankruptcies that are older than seven to 10 years on background checks.

Before an employer can conduct a background check, they must first obtain disclose that they intend to conduct it and obtain the applicant’s written consent.

The FCRA also controls what an employer can do when they learn about an applicant’s bankruptcy or other negative information from a background check.

If an applicant has a past bankruptcy or another red flag that makes you want to deny their application, you must complete the adverse action process before you make a final decision.

11 U.S.C. § 525(b)

Under 11 U.S.C. § 525(b), private employers are prohibited from terminating employees or discriminating against them solely based on the fact that they have filed for bankruptcy.

However, private employers can consider an applicant’s prior bankruptcy as one of several factors when they are considering them for employment when it directly relates to the duties of the position.

11 U.S.C. § 525(a)

Under 11 U.S.C. § 525(a), governmental employers are prohibited from discriminating against employees or altering the terms of their employment based on the fact that they have filed for bankruptcy.

Government employers are also prohibited from denying employment to applicants solely based on prior bankruptcies.

State Laws

Several states have restricted the use of credit information by employers when making hiring decisions, including information about past bankruptcies.

Let’s take a look at a few examples.


Under Cal. Labor Code § 1024.5, private employers are prohibited from using credit records to make hiring decisions.

However, there are a few exceptions to this general rule, including the following:

  • Managerial positions
  • Law enforcement
  • State Department of Justice
  • Jobs requiring regular access to the sensitive financial and identity information of customers in retail
  • Positions for which the information is required to be obtained under state or federal law
  • Positions in which the applicant would have access to the employer’s accounts, credit cards, or financial information
  • Jobs in which the applicant would have access to the employer’s trade secrets and other confidential proprietary data


Under the Illinois Employee Credit Privacy Act (ECPA), employers are prohibited from asking about an applicant’s credit history or refusing to hire someone based on their credit report.

However, employers can do so if they are required to do so under state or federal law, when the position involves the applicant having unsupervised access to $2,500 or more, is a managerial job, or involves the applicant having access to confidential financial information, trade secrets, state or national security information, or personal information.

My Applicant Has Previously Declared Bankruptcy – What Now?

If you learn that an applicant previously filed for bankruptcy, you should assess the information as it directly relates to the duties of the position for which you are hiring.

If the position involves accessing cash, sensitive customer or business information, or financial accounts, you will need to complete the adverse action process before deciding against hiring the applicant.

You will first need to send a pre-adverse action notice to the applicant and include a copy of the background check report on which the bankruptcy appears.

The applicant should be given a specific amount of time to provide mitigating evidence or evidence that the report is wrong.

If you still do not want to hire the applicant, you will need to send a final adverse action notice and include a copy of their rights under state and federal law.


1. What should an applicant do when they have a prior bankruptcy to improve their chances of securing employment?

An applicant should not refuse to consent to a background check. If they do, they can be denied employment based on their refusal.

If the applicant is worried that the prospective employer will learn about their bankruptcy and will deny employment based on it, they should be honest about it with the employer.

The applicant can explain the circumstances that caused them to file for bankruptcy.

In many cases, employers will be understanding if an applicant’s previous bankruptcy was caused by such things as medical problems, divorce, or job loss and will still hire them as long as they are otherwise qualified.

2. Why might an employer conduct a bankruptcy check?

A bankruptcy indicates that an applicant has undergone a financial crisis that could pose a risk to the business and its customers.

An employer might request a bankruptcy check when hiring for a position that will involve access to money, credit cards, and sensitive financial information.

This type of check might help employers determine the degree of risk they might face if they hire candidates who have experienced financial instability that could impact their ability to work conscientiously.

iprospectcheck: Your Partner for Employment Background Checks

As an employer, you want to ensure the applicants you hire are fully qualified for their jobs and will not pose a risk to your company or its clients.

However, you must be careful if you intend to include credit checks as a part of your background screening process and should avoid blanket policies about how your company handles negative information, including bankruptcies.

At iprospectcheck, we conduct thousands of background checks for employers across the U.S. and can help to ensure that your background screening process is legally compliant.

To learn more about our background screening services, call us today: 888-509-1979

DISCLAIMER: The resources provided here are for educational purposes only and do not constitute legal advice. Consult your counsel if you have legal questions related to your specific practices and compliance with applicable laws.

Know Before You Hire

About the Author
Matthew J. Rodgers

Matthew J. Rodgers

Matthew J. Rodgers is a highly accomplished business executive with over 30 years of experience providing strategic vision and leadership to companies ranging from the fortune 500 to iprospectcheck, a company which he co-founded over a decade ago. Matthew is a valued consultant who is dedicated to helping companies create and implement efficient, cost effective and compliant employment screening programs. Matt has been a member of the Professional Background Screeners Association since 2009 . When not focused on iprospectcheck, he can be found spending time with his family, fly fishing, or occasionally running the wild rivers of the American west. A lifetime member of American Whitewater, Matt is passionate about protecting and restoring America’s whitewater rivers.