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Blog 2011 May Possible Discrimination After Bankruptcy
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Possible Discrimination After Bankruptcy

Posted By Carol Ellis || 27-May-2011

Closely related to the problem of reputation is that of discrimination against debtors who have filed bankruptcy cases. To a large extent, the Bankruptcy Code alleviates this problem.

Government bodies generally may not discriminate on the basis of a bankruptcy or because of a debt discharged in bankruptcy. Thus, a housing authority or grantor of government assistance benefits cannot deny benefits to a person based on previously discharged debts. Similarly, utilities may not deny service based on a bankruptcy or discharged debts, though they may demand a security deposit for continued service. Private employers may not discriminate with respect to employment or terminate employment based on bankruptcy or discharged debts. Debtors can rest assured that the law protects them in this regard and that they will be able to enforce their rights in court, if necessary.

However, the distinction between discrimination based on bankruptcy or discharged debts and discrimination based on future financial responsibility should be clearly understood. That is, even creditors who are precluded from discrimination based on bankruptcy may refuse new credit or other services if the refusal is properly based on other considerations.

The law regarding discrimination by other private entities, such as creditors who provide essential services, is not as clear. It should be pointed out that this type of discrimination is extremely rare, especially in urban areas where many providers of goods and services are available. It would be most likely to occur in a small town, where only one merchant offered a particular product or service. In that case, if it could be shown that later discrimination was a prohibited attempt to coerce payment of the debt, the debtor could go to court to seek damages because the creditor violated the bankruptcy laws.

Again, the situation can best be assessed locally, on a case-by-case basis.  Discrimination against debtors who have filed bankruptcy cases is normally not a problem, but if a debtor is in doubt, he or she should consult an experienced bankruptcy attorney.
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