Peter Francis Geraci A Bankruptcy Blog - Chapter 7 & 13

There is an irony to unemployment and credit. If you receive unemployment and cannot afford your minimum payments – your credit suffers, but if your credit suffers you may have difficultly finding a job. More often than not, unemployment does not come close to paying normal monthly living expenses and often a credit score suffers. For example, the Transportation Security Administration (TSA) will not hire if someone owes over $5,000 in debt. So you receive unemployment and possibly may not find employment because your credit is taking hit after hit with every late payment.

According to a study done by the Society for Human Resource Management, over 60 percent of the private sector uses credit as a determiner for employment. That’s a big percentage to have credit checks only done for bankers and financers.  Employers are looking at two big things on your credit – the amount of debt you are in and your payment history (conveniently the two biggest contributors to your credit score calculation). Filing a bankruptcy will eliminate large amount of debt and poor payment history. If you make timely payments, you can actually rebuild!  

The Bankruptcy Code prohibits an employer from discriminating against someone who has filed for bankruptcy and an employer is supposed to tell you if credit information is used against you. So if you file a bankruptcy, an employer cannot use it against you but if you do not file a bankruptcy and have poor credit – you could miss out on a job.  Seemingly, bankruptcy is your better option.

The irrational logic behind bad credit affecting an employee’s ability to complete a job is based on the idea if you have bad credit; you will be distracted from completing your work. My thought is if someone has bad credit, they are thinking about finding work to help with their bad credit! The distraction of “bad credit” happens while they are out of work and trying to put food on the table.  Especially post-bankruptcy, a potential employee has zero debt to distract them while at work.

When your debt starts affecting your ability to find work (and actually pay off the debt), then it’s time to bite the bullet, open the mail and actually do something about it. After your debt is discharged through bankruptcy, make your payments and time and work to rebuild your credit. If a potential employer asks you about your bankruptcy, honesty is the best policy.  Explain to your interviewer you are debt free and have zero distractions to keep you from doing your job.

The rumors circle around the water cooler, a supervisor says hours will be cut, and a couple of months later the dreaded e-mail comes out saying you're losing your job. Unemployment is scary especially when you have debt. When you live paycheck to paycheck, the loss of that paycheck and a chunk of your income is a big hit. Filing a bankruptcy to eliminate the debt can alleviate the loss. Think about it, getting rid of the credit card or medical debt can free up your income so when the first unemployment check comes in it doesn't have to go directly to interest. Instead the money can go toward your mortgage, your vehicle, and things like gas to fuel the inevitable job hunt.

The job hunt becomes a full-time job - you are constantly applying for jobs, updating resumes and trying to get back on your feet. While you are dealing with the stress of job loss, the last thing you need is a creditor calling demanding payment or they will take your dog from your front yard (true creditor story).  When you're on unemployment, it becomes close to impossible to maintain credit card payments with high interest rates and minimum payments. Since we are currently in a "buyers market" when it comes to employment, employers are looking closely at credit reports to weed out potential employees. If you miss a couple of payments or have serious negative information on your credit report, it could be enough to be denied a job.

In an interview with the Dallas Morning News, attorney Mark Shank said there's no federal law that prohibits employment denial because of a bad credit report or score. When you have a tremendous amount of debt to the point where the negative information column on your credit report is starting to look as long as War and Peace, it's time to consider other options. You file a bankruptcy, eliminate the debt, and post-bankruptcy make your payments on time, put some money aside and rebuild.

Will it help you get a job? There's no way of knowing. But you'll be debt free so you can continue the job hunt and actually be able to answer your phone without the fear of being berated by a creditor.