Do Bankruptcies Show up on Background Checks?

When hiring, it’s crucial to understand every aspect of a candidate’s background, including their financial history. Bankruptcy checks are essential for positions involving financial responsibilities, as they provide insight into how a candidate has managed credit and debt. 

This article explores bankruptcy checks, the types of bankruptcies, and whether they appear on various background checks.

What Is a Bankruptcy Check?

A bankruptcy background check involves searching public records or reviewing a candidate’s credit reports to determine if they have filed for bankruptcy. These checks are essential for roles in the financial services industry or positions with access to company assets or sensitive financial information. 

The purpose is to get an objective picture of a candidate’s economic history and how they’ve managed credit.

The Common Types of Bankruptcy

Business Bankruptcy

Businesses typically file for bankruptcy under Chapter 7 or Chapter 11 of federal bankruptcy laws.

Chapter 7 bankruptcy occurs when a company is going out of business. The company’s assets are liquidated in this process to pay off creditors.

Chapter 11 bankruptcy allows a business to continue operating while reorganizing its debts. During the bankruptcy proceedings, the business owner retains control and manages the business. The goal of Chapter 11 is to restructure the debt, allowing the company to repay its creditors over a more extended period or to reduce the total debt amount.

Personal Bankruptcy

Individuals commonly file for bankruptcy under Chapter 7 or Chapter 13.

Chapter 7 bankruptcy, or liquidation bankruptcy, involves selling non-exempt assets to repay creditors. Once these assets are sold, the remaining unsecured debts are discharged. However, certain types of debt, such as alimony, child support, and student loans, cannot be discharged and must still be repaid. This form of bankruptcy gives individuals a fresh start by eliminating most of their unsecured debt.

Chapter 13 bankruptcy allows individuals to keep their assets while developing a plan to repay their debts over three to five years. This type of bankruptcy is beneficial for stopping foreclosures and repossessions. 

Under Chapter 13, individuals can reorganize their debt, making it more manageable and ensuring that any remaining unsecured debt is discharged at the end of the repayment period. This approach benefits those with a steady income who want to avoid losing their property.

Do Bankruptcies Show up on Background Checks?

Depending on the position, bankruptcy employment background checks can be part of comprehensive pre-employment screening. Here’s how bankruptcies appear in different types of background checks:

Credit Checks

Credit checks are essential to the background screening process for positions involving financial responsibilities or access to sensitive information. These checks involve a thorough review of an individual’s credit reports, which provide detailed information about their financial history.

A credit check examines various aspects of a person’s financial behavior, including payment history, current debts, credit utilization, and major financial events such as repossessions and foreclosures. One critical piece of information that can be revealed through a credit check is whether the individual has filed for bankruptcy.

Federal Bankruptcy Court Checks

Federal bankruptcy court checks are a crucial component of a comprehensive background screening process, particularly for positions involving significant financial responsibilities or access to sensitive financial data. These checks involve a search of federal bankruptcy court records to uncover any bankruptcy filings associated with a candidate.

When conducting a federal bankruptcy court check, several critical details are revealed. These include the date someone filed for bankruptcy, the unique case number assigned to the bankruptcy proceedings, the names of the petitioners who filed for bankruptcy, and the discharge date when the person resolved the bankruptcy or that the debt was forgiven.

Civil Court Background Checks

Civil court background checks are designed to uncover a candidate’s involvement in non-criminal legal matters, providing a comprehensive view of their civil litigation history. These checks typically reveal various types of civil cases, such as claims, lawsuits, and judgments in which a candidate might have been involved.

For instance, a civil court background check can show disputes over contracts, property issues, personal injury claims, and other non-criminal matters. The information can be critical for employers seeking to understand candidates’ propensity for legal conflicts, their behavior in stressful situations, and their overall reliability.

Criminal Background Checks

Criminal background checks are essential for employers to review a candidate’s criminal history and ensure they do not pose a risk to the workplace or company. These checks typically cover various aspects of a person’s criminal record, including arrests, pending cases, and convictions for misdemeanors and felonies. 

They can reveal information about serious offenses such as theft, assault, fraud, drug-related crimes, and more, providing a detailed view of an individual’s criminal behavior. However, it’s essential to understand that bankruptcies do not appear on criminal background checks. Bankruptcy cases are not criminal matters but financial issues handled in specialized federal civil courts. 

Since filing for bankruptcy is a legal process for managing debt, it is entirely separate from criminal proceedings and does not fall under the scope of criminal background checks.

Employment Verification

Employment verification is a crucial step in the hiring process. It allows employers to confirm a candidate’s job history and ensure the accuracy of the information provided in their application and resume. This process typically involves contacting previous employers to verify details such as job titles, employment dates, responsibilities, and reasons for leaving. 

Employers can validate candidates’ professional experience and assess their suitability for the role by conducting employment verification. It’s important to note that employment verification does not reveal bankruptcy filings. Employment verification primarily aims to confirm the accuracy of the candidate’s employment history rather than uncover their financial background. 

While employment verification can provide valuable insights into a candidate’s work performance and reliability, it does not offer any information regarding their financial distress or bankruptcy history.

Education Verification

Education verification checks a candidate’s academic background and does not include bankruptcy information.

Driving Record (MVR) Checks

Driving record checks review a candidate’s driving history and license status, but bankruptcies do not appear on these checks.

Federal and State Laws on Bankruptcy Background Checks

The Fair Credit Reporting Act (FCRA) is critical in regulating how financial information, including bankruptcies, can be used in employment decisions. The FCRA outlines specific steps employers must follow to ensure compliance and protect candidates’ rights.

Firstly, employers must inform the candidate in writing that a background check will be conducted, which may include financial information such as bankruptcies. This notification must be provided as a separate document from the job application.

Secondly, employers must obtain the candidate’s written consent before proceeding with the background check. This consent ensures that the candidate is aware of and agrees to the investigation into their financial history.

Suppose the information in the background check is used to take adverse action, such as not hiring the candidate. In that case, the employer must provide the candidate with a copy of the report and a summary of their rights under the FCRA. The step allows the candidate to review the information and dispute any inaccuracies.

In addition to federal regulations, state laws may impose additional restrictions on how bankruptcy information can be used in employment decisions. These state-specific laws can vary significantly, with some states offering more excellent protection to candidates by limiting the use of bankruptcy information in the hiring process. 

Employers must be aware of and comply with federal and state regulations to avoid legal complications and ensure fair treatment of all candidates.

Frequently Asked Questions

Does BK Show Up on Background Check?

Yes, bankruptcies can appear on certain background checks, such as credit and federal bankruptcy court checks. Still, they do not appear on criminal, civil, employment, education, or driving record checks.

Do Employers Check for Bankruptcies?

Employers, especially in the financial services industry, may check for bankruptcies as part of a comprehensive background screening to assess a candidate’s economic stability and suitability for roles involving financial responsibilities.

Final Thoughts

Understanding whether bankruptcies appear on background checks is crucial for making informed hiring decisions. These checks provide valuable insights into a candidate’s financial history and potential risks. 

For thorough and reliable background screening services, consider ScoutLogic’s expertise in background checks, including bankruptcy checks. ExploreScoutLogic’s background screening services to streamline your hiring process and ensure you make the best hiring decisions.

David Garcia

David Garcia, co-founder and CEO of Scout Logic, is an industry leader in the bulk background check world. With his strategic acumen and expertise in the HR sphere, specifically in hiring, recruiting, legal compliance, background checks, and resume screening, he’s an invaluable asset and consultant.

David's counsel extends across the boards of ScoutLogic, YipitData, and Supplier.io, drawing from his impactful stints on the boards of Infutor and Avetta. With an extensive 25-year journey, he champions unparalleled B2B commercial leadership within data & analytics, significantly shaping the HR landscape.