Discrimination by Public and Private Employers Based on Credit Reports and Bankruptcy

AMERICAN DREAM AND BANKRUPTCY

As a Maryland Bankruptcy lawyer I feel we are blessed to live in a country founded on principles that promote the rights of the individual, personal freedom and the right to privacy in our homes and personal lives. This country has nurtured many great political leaders, great entrepreneurs and creative geniuses. Among them one of our founding fathers and drafter of the United States Constitution, Thomas Jefferson, our countries 16^th and possibly greatest president, Abraham Lincoln, who helped preserve this great country.
Our 18^th President Ulysses Grant, Great entrepreneurs and businessmen like Henry Ford, who invented the automobile and revolutionized the modern factory to mass produce those cars. Walt Disney, a brilliant creative businessman who changed the world of entertainment. Great writers such as Samuel Clemens (Mark Twain). All these great people share at least one thing in common: they all had to file bankruptcy. All of these people would be unemployed and unable to make a living in this great country if we decided whether to hire them based on a modern credit report.

NEW SOCIAL CANCER

One of our current presidential candidates, billionaire, Donald Trump filed bankruptcy for his casino business (Mr. Trump did not file personal bankruptcy however). It is against this backdrop that we start a discussion of a new social cancer: The misuse of people’s private credit information to keep them from working and achieving the American dream. Private employers will often request a credit report as part of their pre-employment process. Most people who are in financial trouble are in that situation because of things that are beyond their control, loss of a job, illness, divorce. Why is it reasonable or fair to deny these people a chance to have a normal life?

ACCESS TO YOUR PRIVATE INFORMATION

Leaving aside the unfairness, we have all seen people in the workplace share confidential information about co-workers with their friends. Is it right to give the clerical staff in H.R. access to information about how much you pay your mortgage company, what cars you drive, where you shop. Who wants to give these minions sitting in cubicles in the back office access to our private information? They are not lawyers, CPA’s or for that matter regulated by anyone. They don’t lose a license if they violate ethical standards. In fact the people handling these private records are not regulated at all.

MARYLAND JOB APPLICANT FAIRNESS ACT

This Orwellian practice puts many people in a terrible situation especially when their financial troubles are caused by situations that are beyond their control. Many states are enacting laws to counter this unfair practice. Maryland recently enacted the Job Applicant Fairness Act which limits access to credit reports in the context of employment to employers who are:

Required by state of Federal law to check credit of prospective employees;

• Federally insured banks;
• Certain credit unions;
• Employers who are registered as investment advisors with the SEC;
• An employer with a bona fide reason for requesting or using the information that is substantially job-related and disclosed in writing to the employee or applicant.

The last category will allow employers to obtain credit reports on employees who are “managerial” setting direction and control of a business, department, division etc.; persons who are fiduciaries; persons with access to expense accounts or company credit cards and persons with access to sensitive personal information.

BANKRUPTCY PROTECTION AGAINST EMPLOYER ABUSE

PUBLIC SECTOR – GOVERNMENT

Bankruptcy law has similar and seemingly broader protections from employer abuse. All Federal, State and local governments are prohibited from discriminating against an individual for filing bankruptcy or because that individual was insolvent before filing the bankruptcy:
a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.

With respect to any government job it seems pretty clear that the employer cannot in any way discriminate against an employee or a prospective employee.

PRIVATE SECTOR EMPLOYERS

In 1984 Congress added a new anti-discrimination section targeting private employers. This section of the Bankruptcy code pretty clearly prohibits discrimination by private employers when dealing with employment solely because the person filed bankruptcy or was insolvent before the bankruptcy was filed:
No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt—
(1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;

(2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; 

(3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.

INTERPRETATION OF THE LAW

If you walk down the street and ask passersby what the text of this section means they would tell you its obvious. The person on the street would tell you confidently the employer cannot refuse you employment for filing bankruptcy, because they would be discriminating with respect to employment.At least one Court agreed with this common sense approach. In Leary v. Warnaco, Inc., 251 B.R. 656 (S.D.N.Y. 2000) the plaintiff, Ms. Leary was denied employment based on a credit report that showed she had filed bankruptcy. Deciding in favor of Ms. Leary the court stated:

The plain meaning of the statute does not support such a gloss. Section 525(b) prohibits an employer from discriminating “with respect to employment.” Such language is clearly broad enough to extend to discriminating with respect to extending an offer of employment. Such an application of the plain meaning of the statute makes sense. The evil being legislated against is no different when an employer fires a debtor simply for seeking refuge in bankruptcy, as contrasted with refusing to hire a person who does so. The “fresh start” policy is impaired in either case. A Court should not go out of its way to place such an absurd gloss on a remedial statute, simply because the scrivener was more verbose in writing § 525(a).

Unfortunately this court is in the minority. Lawyers do not always read plain English the way everyone else does. Most courts deciding the issue have gone the other way to say that the language is only clear with regard to existing employees, not prospective employees. They reach this result because the statute that deals with governmental discrimination is very specific when it says the government shall not “deny employment” and the one dealing with private employment discrimination does not.

NON-BANKRUPTCY ALTERNATIVE

Despite the controversy the alternative to filing bankruptcy is in most cases much worse. At least when you file bankruptcy your credit starts to improve. The employers using credit reports will now, more than ever be sensitive to the restrictions on the use of credit reports as States such a Maryland restrict the practice.
In most cases there are no viable non-bankruptcy alternatives. If the employer is uses a credit report to make decisions about hiring the bad credit will be there forever unless the client files bankruptcy and wipes it away. Credit counseling does little to fix the problem in 99% of cases. The clients do not have money left over to pay a costly payment plan. Moreover, the plans are not only not affordable, they only deal with a small number of consumer debts, and the program is voluntary for the lenders. Because interest is often still charged by the lenders that do participate it often takes years before any noticeable balance reduction happens. At least if you file bankruptcy and are discriminated against there is a potential for liability based at least on one courts interpretation of the law.

FAMOUS BANKRUPTCY FILERS

Below is a list of other famous, successful Americans who filed bankruptcy:

• John Connally – Former US Secretary of the Treasury and Former Governor of Texas.
• Daniel Webster – Former Secretary of State
• William McKinley – 25^th United States President
• P.T. Barnum – Founder of Barnum and Bailey Circus
• H.J Heinz – Founder of the H.J Heinz Ketchup Company
• William Durant – Founder of General Motors
• William Fox – Founder of 20^th Century Fox Film Corporation

EXPERIENCED MARYLAND BANKRUPTCY LAWYER

A lot of people who come to our office for bankruptcy help feel very guilty about the fact that they need to go through the bankruptcy process. It is understandable and our experienced Maryland Bankruptcy attorney is here to provide our clients with different bankruptcy and non-bankruptcy options to help our clients resolve their financial mess. Allowing people to get rid of debt and have a fresh start is a great option that many other countries do not offer. You deserve a chance to fulfill your American dream and be successful. Take your first step.

Can Gambling Debts be Discharged in Bankruptcy.

GAMBLING DEBTS

Three bankruptcy Code sections are of concern if the client has incurred substantial gambling debts. The section which excepts from a discharge debts incurred fraudulently, the section barring discharge of debts for willful malicious injury and the general objection to discharge provision regarding transfers of assets with actual intent to hinder delay or defraud creditors or failure to explain loss of assets. The last, Section 727 (a) (2), (3) or (6) of the Bankruptcy Code would be a possible issue if there is a substantial depletion of the clients assets within a year before the bankruptcy filing, either as a failure to explain the disappearance of assets or just as a deliberate attempt to divest himself from the assets in contemplation of filing bankruptcy by gambling them away.

Most casinos will have records of the winnings and losses that were incurred by the client and it is unlikely anyone would deliberately lose substantial assets by gambling them away for the sake of harming their creditors. The Objections to discharge under Section 727 of the Bankruptcy Code are of concern but the client may weather this challenge more easily than the ones addressed below. The client should expect to provide documentation that the funds were actually used and lost. The client should also realize the Chapter 7 trustee might give them a difficult time.

GAMBLING MARKERS

The Casinos who have gambling markers will pose a greater challenge as they often have the gambler sign markers that are much like a check and often have representations by the client that funds are available to pay the marker. These false representations unfortunately might be sufficient to put the client in a bad situation. Often these markers are signed with full knowledge by the casino that the gambler in fact has no funds to cover them. This becomes a matter of proof – Showing the casino did not rely on the representations on the markers and has the gambler sign them deliberately so the casino can later bring a fraud action.

FRAUD ACTIONS

The fraud action is made worse when the gambler incurs a mountain of debt far in excess of what he could possibly pay back. A person on a teacher’s salary would have little hope of ever paying back $200,000 in gambling debts. The magnitude of the debt would provide some proof that the client never intended to pay the debt back. This however has not been an insurmountable problem. There are cases where the Court has found that the gambler had an unrealistic but honest expectation that he would win and pay the money back.

The final area of concern is the willful malicious injury section in Section 523 (a)(6) of the Bankruptcy Code. This section requires that the client have actual intent to harm the casino. The late Honorable Judge Mannes in out district wrote a helpful opinion in Desert Palace, Inc. v. Rich (In re Rich) (Bankr.Md., 2014) where the court determined that there was no subjective intent by the client to harm the casino. He just had unreal expectations that he would win.

If you have substantial gambling debts you have a serious problem. Those debts may or may not be discharged. To handle the complicated process and litigation that will likely have to be done as part of the bankruptcy you will need to consult an experienced Maryland bankruptcy attorney.