Filing Bankruptcy as a Licensed Professional: What To Expect

Filing bankruptcy can provide relief from crushing financial obligations. You might worry about how it affects your professional license.

Good news: bankruptcy rarely results in license revocation. Most licensing boards won’t take action just because you filed. However, some professions have extra requirements.

Will Bankruptcy Cost You Your Professional License?

In most cases, bankruptcy alone won’t revoke your license. If you’re already licensed, you can keep working in your profession.

Some professionals must report their bankruptcy to state licensing boards. Others need to follow specific financial rules. The strictest requirements apply to professions involving financial responsibility.

Professions With Special Bankruptcy Rules

Certain licensed professionals face unique considerations:

• Lawyers: May face restrictions on handling client trust accounts during bankruptcy proceedings
• Real estate agents: Often must report bankruptcy filings to state boards
• Security clearance jobs: May review bankruptcy history, but reduced debt load could actually help

Important: Each state has different rules about professional licenses and bankruptcy. Check with your licensing board before filing to understand reporting requirements.

Can Your Employer Fire You for Filing Bankruptcy?

No. Federal bankruptcy law protects you from termination solely for filing. Both private employers and government agencies must follow these protections.

Your Legal Job Protections

Bankruptcy law prohibits employers from firing, demoting, or cutting your pay because you filed. You can’t be punished for seeking debt relief.

Your current employer can’t take negative action against you just for filing bankruptcy. The law is clear on this protection.

Indirect Effects on Employment

While your current job is protected, bankruptcy might affect future opportunities.

Some employers conduct credit checks during the hiring process. Jobs in finance, law enforcement, and government roles commonly include background checks.

Bankruptcy filings are public records visible on your credit report. Employers who check credit might have concerns. Jobs involving money management or requiring security clearance warrant extra scrutiny. However, many employers focus on overall financial patterns rather than single events.

Special Considerations for Licensed Professionals

Professions requiring financial responsibility come with extra considerations. Industries with heightened scrutiny include:

• Finance and accounting: Employers frequently review credit reports for financial stability signs
• Law and real estate: Professionals managing client trust accounts face additional reporting requirements
• Healthcare: Private practice owners must consider business finance implications

Managing client money can complicate bankruptcy. Lawyers and real estate agents may face trust account restrictions while cases remain open.

Business owners need extra steps to protect business assets and comply with licensing rules.

You probably won’t lose your license, but understanding potential challenges helps you prepare properly.

Chapter 7 vs. Chapter 13 for High Earners

Many professionals earn too much to qualify for Chapter 7 bankruptcy. If you exceed income limits, Chapter 13 bankruptcy becomes your option.

Chapter 13 requires a 3-5 year repayment plan with monthly creditor payments. You’ll need to speak with a bankruptcy attorney for free since most Chapter 13 filers without legal help don’t succeed.

When Defaulting Threatens Your License

Bankruptcy itself rarely causes license revocation. Defaulting on certain debts can trigger problems.

Debts that may affect professional licensing include:

• Student loans for professions requiring certification
• Child support payments
• Spousal support obligations

Some states allow license suspension for unpaid support obligations. Stay current on these critical debts.

Alternatives to Bankruptcy for Licensed Professionals

Bankruptcy eliminates credit card and medical debt, providing a fresh start. But it’s not right for everyone. Other debt relief options exist.

Two common alternatives work well for professionals:

• Debt consolidation: Combines multiple debts into one loan with lower interest rates, making payments manageable and saving money long-term
• Debt settlement: Negotiates with creditors to reduce total amounts owed, potentially impacting credit but saving money

These options don’t stop collection actions, wage garnishment, or lawsuits like bankruptcy’s automatic stay. They may suit professionals wanting to avoid bankruptcy filings.

Consider working with our partner Cambridge Credit Counseling to explore debt management options. Credit counselors help identify debt relief solutions matching your financial and professional needs.

Key Points About Bankruptcy and Professional Licenses

Filing bankruptcy won’t automatically cost you your job or professional license. Reporting requirements vary by state and profession.

Some professionals face restrictions on handling client funds during proceedings. Lawyers and real estate agents encounter the most limitations.

New license applications or renewals may review bankruptcy history. However, bankruptcy rarely becomes a dealbreaker for licensing decisions.

Check your state’s specific rules before filing. Understanding requirements helps you prepare properly and avoid surprises.