Will I Lose My Job if I File for Bankruptcy in Colorado?

September 24, 2010

By: David M. Serafin

With Colorado experiencing more and more bankruptcy filings, many clients are expressing increased anxiety over potential loss of their job for filing bankruptcy. For the most part, Colorado is an “employment at will” state meaning that you can be fired for little or no reason, absent special provision (see below). At the same time, an employee has the right to leave their job for no reason and without notice.

Fortunately, Section 525(b) of the U.S. Bankruptcy Code protects an employee, who has filed for Bankruptcy protection, against discrimination on this basis. The reasoning behind this law is to protect those who seek a “fresh start” from losing their job.

At the same time, unless you openly inform your employer of your filing, it is unlikely that your employer will ever know about your filing. Even though bankruptcy filings in Colorado are public record (with the exception of Social Security Number documentation, which is sealed), an employer would need to do some serious digging to even learn this information.

In chapter 7, nobody, including the Bankruptcy Court or trustee will notify your employer (absent very unusual circumstances such as if your employer is also a creditor).

However, in chapter 13 bankruptcy, your employer will learn about the bankruptcy filing if you chose to have monthly plan payments garnished from your income. Even though Chapter 13 Plans are ultimately more successful if the payments are garnished (perhaps because you never see the money and don’t have to worry about forgetting to send a check to the trustee each month), you can choose to directly make plan payments to the chapter 13 trustee (and most of my clients elect this option).

But, if an employee discrimination claim under Section 525(b) is necessary, you may be entitled to back wages and emotional distress.