Are you considering filing for bankruptcy in Michigan?
One common concern that individuals have is whether bankruptcies will appear on their background checks and impact their future opportunities. Let’s look into this together.
Does A Bankruptcy on a Background Check Matter in Michigan?
In Michigan, the inclusion of bankruptcy information on a background check depends on the type of background screening being conducted. Bankruptcies fall under the realm of public records, meaning that they are accessible to anyone interested in exploring an individual’s financial history. Bankruptcy filings can potentially surface during a comprehensive background check.
Michigan follows the federal guidelines set forth in the Fair Credit Reporting Act (FCRA) when it comes to background checks and bankruptcy information. The FCRA dictates that bankruptcy information older than ten years should not be included in consumer reports. [1]
Honesty is often the best policy when confronted with a bankruptcy that was found on a background check. Just provide a brief explanation of the circumstances surrounding the bankruptcy during an interview or application process. Hopefully the person asking will observe accountability, transparency, and that steps have been taken to overcome financial adversities.
Employer Background Checks and Bankruptcy in Michigan
When employers seek to gather information through background checks, they typically rely on third-party services that compile various types of records, including bankruptcy filings. [2]
Bankruptcies can be found in two primary types of background check reports: credit checks and public record reports. Credit checks primarily focus on an individual’s financial history, including payment history, debt-to-income ratio, and any delinquencies or bankruptcies.
The federal Bankruptcy Code and the FCRA explicitly state that an individual cannot be denied employment, fired, or otherwise discriminated against solely due to bankruptcy. Employers can consider an applicant’s financial history if it is relevant to the job responsibilities or if the position involves handling sensitive financial matters.
Tenant Screening and Bankruptcy on Background Check in Michigan
Landlords in Michigan are legally permitted to consider bankruptcy when evaluating potential tenants. The presence of a bankruptcy on a background check doesn’t automatically disqualify an individual from renting a property.
Chapter 13 bankruptcies often demonstrate a debtor’s commitment to repaying their obligations, which may be viewed more favorably by landlords than a Chapter 7 bankruptcy, where assets are typically liquidated.
While bankruptcies can serve as red flags during the screening process, landlords should remain cognizant of fair housing laws. Refusing to rent to tenants solely based on bankruptcy status may violate the Fair Housing Act.
Lender Background Checks and Bankruptcy in Michigan
In Michigan, credit reports are frequently used by lenders to evaluate a borrower’s credit history and score, which ultimately determines their likelihood of repaying a loan. If a bankruptcy filing is present in the credit report, it may signal to lenders that the individual or business faced significant financial challenges in the past. This can impact the lender’s decision on whether to approve a loan or establish less favorable terms.
Traditional banks and mortgage lenders may have stricter criteria and a greater aversion to lending to individuals with a recent bankruptcy filing.
Alternative lenders and online loan platforms may be more lenient and consider additional factors beyond a simple credit report.
Why Do Background Checks Include Bankruptcies in Michigan?
Bankruptcies can provide insight into an individual’s financial stability and responsibility. By examining someone’s bankruptcy history, employers or landlords can assess a person’s ability to manage their finances effectively. This information may be particularly relevant for positions that involve handling monetary transactions or accessing sensitive financial data.
If an individual has filed for bankruptcy due to fraudulent activities or mismanagement of funds, it could indicate a higher likelihood of dishonest behavior in the workplace. Background checks, including bankruptcy records, aim to mitigate these risks, ensuring the safety and integrity of businesses and individuals involved.
By understanding an individual’s financial history, creditors and landlords can make informed decisions based on the risk associated with extending credit or leasing properties. The Fair Credit Reporting Act (FCRA) allows the inclusion of bankruptcy records in background checks, as long as certain guidelines are followed.
How Long Do Bankruptcies Stay on Record in Michigan?
In Michigan, Chapter 7 bankruptcies can remain on a credit report for ten years from the date of filing and Chapter 13 bankruptcies, which involve a repayment plan over three to five years, are generally removed from credit reports after seven years from the filing date.
Bankruptcies may remain on a credit report for a specific amount of time, but their impact on one’s creditworthiness may diminish over the years. Creditors and lenders typically focus on recent credit history rather than events that occurred several years ago.
As time passes, the negative effects of bankruptcy on your credit score and ability to secure loans or credit may start to fade.
Contact Frego & Associates today to get the answers you need about filing bankruptcy in Michigan.
Sources:
[1] Fair Credit Reporting Act. (2024, April 3). Federal Trade Commission. https://www.ftc.gov/legal-library/browse/statutes/fair-credit-reporting-act
[2] Hubein, D. (2024, June 6). Michigan. GoodHire. https://www.goodhire.com/background-checks/michigan/
