What reasons would an employer have in firing someone who has declared bankruptcy?

491 views

I was watching a tv show where a character had to declare bankruptcy. She was told that she was required by law to disclose this to her employer. I’m not sure how much of this is based in fact, but if you had a lot of debt, wouldn’t it be beneficial for all parties involved to allow that person to keep earning an income in order to reduce that debt?

For added context, this was an Australian show so I’m not sure if these laws apply elsewhere, let alone Australia.

In: Other

The general logic that is used behind this is that if someone is having financial trouble they are more likely to steal or commit some other crime in order to deal with that.

Whether or not that logic is true in most cases, or whether it is simply an excuse to fire someone the employer perceives as a failure is far too complicated a question to answer simply, especially considering how morally complex it is.

In most situations, an employer is not required to have a specific reason to fire someone.

Employers can fire that person because they showed irresponsibility covering their own financial matters, therefore we don’t trust them with our company business matters.

Some jobs require licensing that you lose if you go become bankrupt. Usually the jobs involve handling large amounts or money or giving people financial advice. The thought process is that if you are incapable of handling your own money to the point you are bankrupt, you can’t be trusted to properly handle other people’s money.

In many cases it doesn’t matter. However, employing someone with a history of money problems represents a potential risk in, say, the Financial industry, or in a position where they handle large sums of cash or merchandise, since they would have incentive to steal.

Similarly, a bankruptcy or high level of debt represents a problem if your job requires you maintain a Secret or Top Secret clearance, since conventional wisdom is that you would be more susceptible to foreign agents offering cash for secrets. It’s why the CIA and FBI have traditionally done a disproportionate amount of their recruiting at Ivy League universities — the thought being that students whose families can afford to send them to Princeton or Yale are financially established enough that they don’t need the money, per se, and will work more for love of country.

Jobs with a security clearance do similar things, though they wouldn’t fire you because you declared bankruptcy, they fire you because you don’t handle your debts. Now what that means is if you decide to stop paying your car loan and mortgage, and tell the debt collectors to pound sand, they’d probably fire you, you have these massive debts that you’re not dealing with, they may eventually force you into bankruptcy, and that’s going to be bad for you. If on the other hand your health insurance lapsed, and then you had a heart attack, and have $750k in medical bills that you owe that you just can’t pay, and you opt to declare bankruptcy to clear it, well in that case, bankruptcy is the way that you are legally dealing with the debt, and that’s not a problem.

So really, bankruptcy is a sign, and they look into the why, if you just can’t stop buying things you can’t afford and run away from people collecting, you’re not dealing with your problems and that is an issue. If you got a one off debt due to circumstances largely outside of your control (loss of job, medical issues, accident, etc), and you clear it with a bankruptcy, well that’s fine.

Certain jobs require you to disclose financial difficulty for the reasons already mentioned. Another factor, particularly if working with convicted criminals (such as Police, Probation, Court staff etc.) is that you may be more susceptible to receiving bribes.

This probably wouldn’t be grounds for dismissal, but would usually mean that you are monitored more closely.

> but if you had a lot of debt, wouldn’t it be beneficial for all parties involved to allow that person to keep earning an income in order to reduce that debt?

Do you consider the (actual or potential) employer to be an “involved party”?

How would it be beneficial to me to hire a financial advisor who can’t handle their own finances, rather than some other one?