Your bankruptcy is an open book

Dear Bankruptcy Adviser,
I am at the point where I am strongly considering filing bankruptcy. Because I work for a very small company with only a handful of employees, I am concerned about whether or not my employer must be, or would be, notified if I filed.

My boss, to put it bluntly, is not in any way discreet, and I know without a doubt that she would tell everyone about my bankruptcy if she were made aware of it. Is there any way to prevent my employer from being notified? Does it make a difference based on whether I file for Chapter 13 or Chapter 7?
— Melissa

Dear Melissa,
Bankruptcy filings are public information. Each and every petition is accessible to the general public, for a nominal fee, through an electronic filing system. Some local newspapers access this information and will publish the names of people that file for bankruptcy in that particular community.

However, the vast majority of employers would have no reason to subscribe to this electronic filing system. Nor would most employers, via their human resources department, have any reason to annually monitor whether employees filed for bankruptcy protection. There are a couple of exceptions, for example, for law enforcement personnel. Law enforcement officers in financial distress are more likely to accept bribes in lieu of prosecuting criminal conduct; therefore, annual credit checks may occur.

In Chapter 7 bankruptcy filings, known as a fresh-start bankruptcy, your employer should have no reason to know that you filed bankruptcy. As long as you provide all required documents prior to filing, no one at your work will need to know.

The name of your employer is listed in your bankruptcy paperwork in Chapter 7 and Chapter 13 bankruptcies. You must list the name and address of your current employer, your position and the length of time at your job. And you do have to provide all pay stubs for pay periods two months prior to filing, meaning if you filed your case Nov. 1, 2009, then you must provide stubs from September and October.

In a Chapter 13 bankruptcy, known as a reorganization bankruptcy, your employer could be notified of the filing. Chapter 13 is a repayment plan of some or all of your debt over a three- to five-year period. Some courts do require that plan payments be deducted directly from your paycheck. That is done to ensure that you actually make the payments and create less work for the trustee — the person who is assigned to your case and who administers your plan payments to creditors.

If you fall behind on your Chapter 13 plan payments, some Chapter 13 trustees will contact your employer to start direct deductions from your paycheck. Even if your employer was not initially notified of the filing, the trustee would notify the employer after filing to receive post-filing payments. You can speak to a local bankruptcy attorney to ask whether the Chapter 13 trustees in your area require direct paycheck wage deductions.

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