Bankruptcy happens. It’s not a crime, it’s not a moral failure, it’s not a character flaw. In times of economic upheaval, in particular, even the most hard-working, intelligent, and responsible professionals, from physicians to accountants to hairstylists, can find that their debts have simply become untenable. Filing for bankruptcy can itself be a difficult experience, emotionally, financially, and practically. But if you’re also worried that you might lose your professional license, and thus your ability to support yourself and your family, the anxiety is only compounded.
Fortunately, in most cases, filing a Chapter 7 or 13 bankruptcy proceeding without more will not result in the loss of a professional license.
The Bankruptcy Code Is Designed To Provide Protection, Not Persecution
The law provides for bankruptcy proceedings to give an overwhelmed debtor a second chance and give creditors a chance at recovering at least some of the amounts owed to them. Bankruptcy proceedings may be painful, but they are not supposed to be a persecution.
That is why the Bankruptcy Code prohibits private and public employers from using a bankruptcy filing as the sole reason to terminate an employee or otherwise take adverse action against them.
Specifically, Section 525(b) of the Bankruptcy Code provides that “No private employer may terminate the employment of, or discriminate with respect to employment against” an employee “solely because” the employee:
- is or has been a debtor or bankrupt under the Bankruptcy Act;
- has been insolvent before the commencement of a bankruptcy proceeding or during the case but before the grant or denial of a discharge; or
- has not paid a debt that is dischargeable or that was discharged under the Bankruptcy Act.
Note the “solely because” language. If other reasons exist for terminating an employee that may tangentially relate to the bankruptcy, such as dishonesty, fraud, or other malfeasance, the Bankruptcy Code won’t necessarily save an employee’s job.
Professional Licenses Are Protected Assets In Bankruptcy
A professional license is a valuable asset, one obtained through a substantial investment of time, effort, and money. In a bankruptcy proceeding under either Chapter 7 or 13, the debtor’s assets become a crucial part of resolving the debts and obligations that led to the filing of bankruptcy in the first place.
But professional licenses are only of value to the licensee; they can’t be transferred or used by a debtor to satisfy their debt. The real threat that bankruptcy poses to a professional license is the risk that a governmental licensing body, like the Illinois Department of Financial and Professional Regulation (IDFPR), will use the proceedings as a basis for denying, suspending, or revoking a license.
But since bankruptcy, as noted, is not designed for punishment, the Bankruptcy Code explicitly protects professional licenses and the ability of licensees to continue to earn a living.
Specifically, Bankruptcy Code Section 525(a) states:
[A] governmental unit may not deny, revoke, suspend, or refuse to renew a license… against a person that is or has been a… debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.
Again, the “solely because” language is key. A professional licensee’s bankruptcy, depending on the circumstances, may implicate other issues that could lead to or support disciplinary actions. But the bankruptcy itself, without more, should not threaten a debtor’s professional license.
Louis Fine: Chicago Professional License Defense Attorney
If you are a licensed Illinois professional and have concerns about how a bankruptcy might impact your license and career, I welcome the opportunity to meet with you.
Please give me a call at (312) 236-2433 or fill out my online form to arrange for your free initial consultation. I look forward to meeting with you.