What you need to know about Bankruptcy Background Checks for Employment

What Exactly is Bankruptcy?

Bankruptcy is a legal status that results from a court filing by a debtor who is unable to repay their debts. It can also be referred to as "insolvency." 

An individual can file for bankruptcy for many reasons, including: not being able to pay for bills like medical bills or a mortgage; spending beyond their means and incurring debt they cannot pay; or a total loss of their income. 

In general, it has been found that people with a bankruptcy on their record are less likely to be hired because of the stigma associated with such a status. Some companies require applicants for certain types of jobs to have no bankruptcies on their records over their whole lifetime. Others might be more lenient, such as not having bankruptcies in the past 10 years as grounds for hiring an applicant.

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What is a Bankruptcy Check for Employment?

A background check is an important part of the hiring process. In fact, it's a requirement for most employers. Background checking typically includes credit history, bankruptcies, and other factors that may disqualify an applicant from being hired. 

A bankruptcy check is a type of background check that can be used to show proof of a person's financial status. It is usually used by employers and other organizations in the context of hiring. A pre-employment bankruptcy check can be requested by employers who are concerned about their employees' financial stability, and want to make sure they are not experiencing financial difficulties that could affect their ability to work coherently and conscientiously in the future. This check is also important for roles where one must handle money and high-value transactions for the organization and its clients.

The most common opportunity for running a bankruptcy check is during the job search process. An employer may request one before hiring an applicant, or after a new employee has been hired and is about to go through onboarding, as part of the hiring and offer process.

Does Bankruptcy Automatically show up on a Pre-Employment Background Check?

Since there are many different types of background checks that employers can run on their prospective hires, a bankruptcy verification does not necessarily come up unless it is specifically sought by employers. For example, if an employer runs a criminal record background check on a potential hire, the record will include criminal cases that the person is involved in, possible past or unspent convictions, and other information related to criminal activity. A bankruptcy is unrelated to criminal activity, and will not be included. Hence, a bankruptcy background check must be carried out intentionally by an employer.  

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Why should Employers Ask About Bankruptcy When Doing a Background Check for Employment?

Bankruptcy is a risk factor in the job market. It is a form of personal financial crisis that can have long-lasting effects on an individual's future employment. The effects of bankruptcy can range from a loss of income, to the inability to find or maintain work, and to difficulty carrying on healthy employee relations.

There are many reasons why employers ask about bankruptcy when doing a background check for employment purposes. One is to screen out those applicants who might be more likely to file for bankruptcy in the future - this possibility may affect the way they carry out their work. Another reason is to ensure that the person being hired is not adversely affected by the need to handle large amounts of money and financial transactions. Organizations must make sure that the person they place in such a role will not be tempted to steal, or otherwise handle finances indiscreetly.

Background Checks vs Credit Reports for Employment Screening - Which is Better?

Running background checks and securing credit reports are two of the most popular methods of verification in pre-employment screening processes, regardless of where you are in the world. But which is better?

Running background checks are more comprehensive than getting credit reports because background checks will cover various aspects of a potential hire’s history: criminal records, employment history, property ownership information, bankruptcy and financial status, and more. Credit reports only contain the credit record of an individual.

But the answer to this question depends on what you need to screen for as an employer, and for the particular role to which you are hiring. If you need to conduct a thorough screening for greater accuracy, depth and regulatory compliance, then a background check would be best. But if you just want to know if someone has bad credit or not, then a credit report would be sufficient.

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Bankruptcy Checks in the UK versus other countries

Conducting a bankruptcy check on an individual in the UK is simpler compared to the US. In the UK, there is an online Bankruptcy and Insolvency Register covering England and Wales. Searching this register will reveal whether an individual has filed any bankruptcies or signed an agreement to deal with outstanding debts. There is also a Disqualified Directors Register, that identifies if an individual has been barred from being a company director, specifically. These resources are free to use.

In the US, there are distinct types of bankruptcies, and they are governed by the presence of both local or state laws as well as federal or nation-wide laws. These can limit whether an employer can legally conduct a bankruptcy check on a potential hire or not. While the results of bankruptcy cases are considered public information (just like in the UK and other markets), local and federal legislation may prevent employers in certain states or industries from considering bankruptcies as part of their hiring processes or background screenings.

In other markets such as Singapore and the Philippines, it is usually a free process to search for a person’s bankruptcies. This can be done through the Ministry of Law Insolvency Office in Singapore (for a nominal fee), and the Freedom of Information Office in the Philippines (where requests are processed manually and may be denied if lacking substantial reason for the request).

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Should Employers Disqualify Applicants Who Have a Bankruptcy on Record?

What happens when an applicant has filed for bankruptcy? This is something that needs to be considered carefully by an organization, especially because the number of people who are filing for bankruptcy is increasing. It may not be the best decision to simply disquality all applicants who have bankruptcies on their records.

Nonetheless, a bankruptcy can have a long-term effect on the credit score of an individual. Therefore, it is not surprising that background checks for those who are applying for jobs (or loans) are screened regarding any bankruptcies.

Whatever your company decides, running a thorough background screening process, including a bankruptcy check, creates an opportunity to make a solid and informed hiring decision.

This is especially true as more companies start to use digital screening HR software to automate their background check processes. These systems can detect whether an applicant has filed for bankruptcy within the past few years and then flag them accordingly for your consideration.

Conclusion: Why Do You Need a Bankruptcy Background Check for Employees?

Conducting a bankruptcy background check on potential employees is important for organizations to avert unnecessary risk. A potential employee could be filing for bankruptcy to avoid paying their debts, and this can tell you a lot about how they would act professionally as part of your team. The more information you can gather about your potential employees through background checks, the more sound and future-ready your team building plans will be.

A bankruptcy background check is an important part of the hiring process because it can help companies avoid hiring a person that may negatively impact their company's finances in the future.

Let Veremark help you conduct quick, efficient, and thorough bankruptcy background checks on your potential hires. Whether it is to ensure financially secure hires, or other types of background verification from employment history, to social media checks, and more, Veremark has the comprehensive suite of background checks to meet your needs, and the integration-ready technology to ensure you have a smooth and positive screening and hiring experience.