A quick guide to what to do when an employer files for Chapter 7 or Chapter 11 bankruptcy.
Chapter 7 bankruptcy
During Chapter 7 bankruptcy, the company will stop operations, and employees will be laid off.
The bankruptcy trustee will sell the assets of the business to pay off creditors. However, this will be done in a specific order, starting with the guaranteed claims, the bankruptcy administration expenses, and then the priority unsecured claims (these are the ones that include employee wages and benefits), and finally, the general claims not guaranteed.
Because the employer is now out of business, employees must apply for temporary benefits, including unemployment insurance, when looking for a new job.
Chapter 11 bankruptcy
Unlike a Chapter 7 filing, in a Chapter 11 bankruptcy, the employer stays in business and works to rebuild the organization’s finances. While many employees will remain in their jobs and continue to receive benefits, others will likely face layoffs.
In layoff cases, employees who are owed wages and benefits will become creditors to the business. During the restructuring process, representatives of the company’s largest creditors (including employees) will serve as a check and balance sheet to ensure that the company is making sound decisions in the bankruptcy process.
Employee claims for pre-bankruptcy wages, vacation, sick leave, and severance pay take precedence over other unsecured claims up to a maximum of $13,650 per employee.
How do I get my salary and benefits?
To claim your owed wages, benefits, etc., you must file a Proof of Claim form with the court handling bankruptcy. Failure to do so will give up your rights to receive a claim under filing for bankruptcy.
You will need to provide the following:
1. The name of the company
2. Bankruptcy case number
3. The location of the bankruptcy court where the company filed its case
4. The amount owed
5. Any document supporting the claim and showing how much is owed
Remember, the Federal Bankruptcy Code gives priority to claims for unpaid wages, salaries, commissions, vacations, severance pay, and sick leave payments, if they are obtained within 180 days after the company’s bankruptcy is filed or when the company ceased to be in operation.
