One of the biggest concerns people have when considering bankruptcy is whether it will cost them their job. This is a common concern for wage earners in Georgia, especially when it comes to Chapter 13 bankruptcy, which involves a multi-year payment plan funded by regular income. However, there is good news: federal law provides strong protection for employees who file for bankruptcy and employers who violate these laws can face serious consequences.
Chapter 13 Bankruptcy and Employment: The Legal Framework
Chapter 13 bankruptcy is governed by federal law and is designed to help individuals with regular income restructure their debts and repay them over a period of three to five years, while preserving their property and income.
Crucially, the Bankruptcy Code provides specific anti-discrimination protections for individuals in bankruptcy. Under 11 U.S.C. § 525(b), employers are prohibited from firing or discriminating against individuals solely because they have filed for bankruptcy or are unable to pay a debt that is discharged in bankruptcy.
This protection applies regardless of whether you file for Chapter 7 or Chapter 13 bankruptcy.
Employers Cannot Fire You for Filing Chapter 13
An employer is not legally allowed to fire an employee simply because they have filed for Chapter 13 bankruptcy protection. This is in violation of 11 U.S.C. § 525(b), which clearly prohibits employment termination based on an employee’s bankruptcy status.
This protection exists because Congress recognizes that bankruptcy is intended to help people regain financial stability, rather than pushing them further into a financial crisis. If employers were allowed to fire employees for filing for bankruptcy, the entire purpose of Chapter 13 would be undermined.
Employers Cannot Demote, Discipline, or Retaliate
Job protection under bankruptcy law extends beyond termination. Employers are also prohibited from taking certain actions against employees who have filed for bankruptcy, including:
- Demoting them
- Reducing their pay or hours
- Denying them promotions
- Taking any other adverse employment action
Any such action taken solely because of the employee’s Chapter 13 bankruptcy case may be considered unlawful under the bankruptcy laws. If an employer retaliates against an employee in this way, the employee may have legal recourse, including the option to seek reinstatement to their previous position or compensation for damages.
Wage Garnishments Must Stop After Filing
Many Chapter 13 bankruptcy filers come because wage garnishment has made it impossible for them to pay for basic living expenses. When a person files for Chapter 13, they trigger an “automatic stay” under 11 U.S.C. § 362. This immediately halts most collection activities, including wage garnishments.
Once your employer receives notice of a bankruptcy filing, they must legally stop honoring any wage garnishments that are in place. Continuing to garnish wages after receiving notice can expose both creditors and, in some cases, employers to sanctions from the bankruptcy court.
When Employers May Still Take Action
While bankruptcy law provides strong protection for employees, it does not exempt them from legitimate workplace disciplinary measures. An employer can still take action based on:
- Poor job performance
- Violation of company policies
- Layoffs or restructurings unrelated to bankruptcy
The main legal issue here is causation. If an action would have happened regardless of the bankruptcy filing, then it is generally legal. However, if the bankruptcy filing was the real reason behind an employer’s decision, then that action may be in violation of federal law.
Chapter 13 Payroll Deductions Are Lawful
Some Chapter 13 plans include voluntary payroll deductions to ensure that plan payments are made on time. These deductions are authorized by the bankruptcy court and are not considered wage garnishments.
Employers are permitted—and, in some cases, required—to process these deductions if ordered by the court. It is important to note that cooperating with a Chapter 13 payment plan does not subject employers to any liability.
Why Chapter 13 Can Improve Job Stability
Ironically, filing for Chapter 13 bankruptcy often reduces workplace stress rather than increases it. By stopping wage garnishment, lawsuits, vehicle repossession and home foreclosure, Chapter 13 allows individuals to focus on their jobs without constant financial pressure.
For many people, Chapter 13 also helps reinstating driver’s license that have been suspended, protects vehicles from repossession, and stabilizes housing – all factors that directly affect job security.
Know Your Rights Before You File
Filing for Chapter 13 bankruptcy is not a risk to your job. Federal laws protect employees from being fired, demoted, or penalized simply for seeking financial relief. When done correctly, Chapter 13 can be an effective tool to protect your income and future.
If you are struggling with debt and worried about how bankruptcy might affect your employment, we encourage you to contact Duncan Bankruptcy Law for a free consultation. Our experienced Augusta Chapter 13 bankruptcy attorneys can help you understand your options, protect your rights, and work towards achieving real financial stability.
