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Employer can't discriminate because of bankruptcy

Dr. Don TaylorDear Dr. Don,
How will filing for bankruptcy affect my job, and does my employer get notified if I file? Also, will I lose the little I have saved in my retirement program?
-- Anxious Angelina

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Dear Angelina,
An employer, or prospective employer, has to have your written consent to get a copy of your credit report. Not all states allow employers to obtain a credit report for employees or prospective employees. But you may have provided your current employer with that consent as part of your job application.

The Federal Bankruptcy Act has this to say about private employers discriminating on the basis of learning about an employee's bankruptcy:

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

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, or BAPA, has expanded the definition in regard to which retirement savings are protected. Under the old rules, only ERISA-qualified plans were protected, which meant virtually all 401(k) plans and pension plans. The new law generally includes IRAs up to $1 million as protected assets.

The U.S. Supreme Court also ruled recently that IRAs are exempt from becoming part of the bankruptcy estate used to pay creditors, at least prior to age 59 ½, when distributions are no longer subject to the 10-percent early-withdrawal penalty tax. The recent changes to the law and the Supreme Court ruling are complex, so you'll want to confirm with your bankruptcy attorney that your retirement accounts are protected.

Most of the provisions of BAPA become effective in October. There's going to be a big rush to file for bankruptcy before that date. If you're seriously considering filing for bankruptcy, you should talk to an attorney now.

-- Posted: May 18, 2005





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