How the Bankruptcy Code Protects You Against Post-Bankruptcy Employment Discrimination

January 16, 2014  |   Posted by :   |   Blog   |   0 Comment»

jmboxingBankruptcy Code Protects Against Post-Bankruptcy Employment Discrimination

The core objective of the Bankruptcy Code is to provide a “fresh start” for bankruptcy debtors. It is also designed to provide equitable treatment to creditors. The drafters of the Bankruptcy Code realized that a serious obstacle to a fresh start for many debtors is the stigma associated with bankruptcy after filing. This stigma is especially damaging to a debtor if it is acted upon by persons in a position to discriminate against the debtor with respect to matters of financial importance, such as employment and the issuance of governmental licenses, permits, and grants. To assist debtors in overcoming these obstacles to a fresh start, Section 525 addresses employment discrimination, as well as other types of official discrimination.

Section 525 prohibits three basic forms of discrimination against bankruptcy debtors under any bankruptcy chapter: (1) discrimination by governmental units with respect to employment and with respect to the granting of licenses, permits, franchises, and similar grants; (2) discrimination by private employers with respect to employment; and (3) discrimination with respect to the making or insuring of student loans. Section 525 applies to any bankruptcy chapter. Therefore, a chapter 7 debtor, a chapter 13 debtor, a chapter 12 debtor, or a chapter 11 debtor may invoke the provisions of Section 525.

One of the most important functions of Section 525 is to protect against post-bankruptcy employment discrimination. Section 525(a) explicitly prohibits governmental units from discriminating against bankruptcy debtors with respect to employment. For example, a governmental agency’s policy of disciplining or terminating employees whose wages were subjected to Chapter 13 wage deductions has been found to be a violation of Section 525(a). Likewise, the armed forces are prohibited by Section 525(a) from discriminating against a military debtor with respect to such matters as assignments, promotions and pay benefits solely because the debtor had filed bankruptcy. On the other hand, discrimination based on other factors may still be appropriate.To be a violation of Section 525(a), a debtor must prove that the employment offense was committed by the governmental unit “solely because” of the debtor’s bankruptcy. If other reasons exist to justify the termination of the debtor’s employment or the failure to promote the debtor, Section 525(a) has not been violated. This can be a difficult burden to prove. Therefore, interested persons should seek the help of an experienced bankruptcy attorney.Debtors’ remedies for Section 525(a) violations. A debtor who establishes a violation of Section 525(a) by a governmental unit is entitled to injunctive and declaratory relief. The most common type of relief granted in Section 525(a) proceeding is an injunction barring further discriminatory action by the governmental unit or an order directing the governmental unit to issue the requested license or grant. An order of reinstatement may also be an appropriate remedy. The law is detailed and constantly evolving in this area. Contact our office for more information on post-bankruptcy discrimination, or pick up a bankruptcy book, such as Argyle Publishing’s Bankruptcy Issues Handbook (2013).

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