Are employees first in line to collect owed wages in a Chapter 7 filing?

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Are employees first in line to collect owed wages in a Chapter 7 filing?

My former employer filed about 6 weeks ago.

Asked on September 18, 2011 under Bankruptcy Law, New York

Answers:

M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

If a Chapter 7 filed by an employer, unpaid wages, vacation pay and/or like claims will rank as "preferred" claims in the bankruptcy proceeding. This means that they are behind "secured" creditors (e.g. th holder of a mortgage or security interest) but ahead of ordinary creditors. 

Now that you have official notice of the bankruptcy filing (I assume, since as a creditor you should have recieved one), you will need to file a wage claim. There will be a meeting of creditors (however you don't need to attend). 

Employees who are owed wages will share in the remaining assets of their bankrupt employer.  In some cases, there will be sufficient assets to satisfy all employee claims in full; in others, they may be compensated for only a portion of their claims; in still other cases they will receive nothing at all.


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