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

UPDATED: Sep 18, 2011

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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


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

Answered 11 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.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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