Can I collect unemployment if my employer goes bankrupt?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Written by Jeffrey Johnson
Insurance Lawyer Jeffrey Johnson

UPDATED: Jul 15, 2021

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Your unemployment benefits will continue even if your employer declares bankruptcy. Your former employer has a legal responsibility to pay unemployment insurance for employees to the agency that pays your unemployment benefits, but your employer’s inability to pay or cessation of business does not affect your right to unemployment benefits.

The unemployment insurance system is designed by each state to cover your expenses if you become unemployed in a qualified manner. While you were working for your employer, you were also building a standing claim amount with this government-run unemployment compensation system so that in the event of your layoff, you would receive benefits that were somewhat comparable to the wages you were being paid. Because companies go bankrupt all the time, your former employer filing for bankruptcy shouldn’t affect your benefit payments, and there are protections in place for just such this situation.

The unemployment benefits you receive are an accumulated result of all of the taxes that both the public and private businesses in your state pay on a weekly or monthly basis. Your previous employer may very well have paid into the unemployment insurance system, but she wasn’t paying your benefit amount every week, so when she stops paying, your benefit doesn’t stop. As long as you remain eligible to receive your weekly unemployment benefit rate, your benefits shouldn’t be halted at any time, unless you either become employed or discontinue your claim. The only other reason your claim may be stopped is because you’ve reached the end of your benefit term, and your available compensation has expired.

However, it might effect your ability to collect unemployment if your employer never actually paid the unemployment insurance while you were employed. It can happen that an employer simply doesn’t keep up on unemployment insurance or payroll taxes, which can cause a huge inconvenience (to say the least) for employees. This is probably fraud by your employer, but unfortunately even in this type of situation it can happen that you may be ineligible for unemployment benefits as a result of your past employer’s deceit.

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