My employer filed for bankruptcy. Will I continue to be paid?

There are a few different parts to this question. First, if your employer files a Chapter 11 bankruptcy, continues to operate, and does not terminate you, you should be paid for work you do during the Chapter 11. Second, if the employer files a Chapter 7 bankruptcy or converts a Chapter 11 to a Chapter 7, wages you are owed are given a priority under bankruptcy law. If you earned wages after the filing, as you would if the bankruptcy was a Chapter 11, your wages are given a very high priority because they are treated as “administrative expenses,” which are costs related to keeping the debtor operating or preserving its assets.

Wages earned before the filing get a lower priority, but are still paid before general unsecured claims. At least some of the wages (currently $10,950) you earned up to 180 days before the filing are given this priority. Wages in this context include “wages, salaries, or commissions, including vacation, severance, and sick leave pay.” But that assumes that there are assets available to pay your claim. In many cases, the employer may not have many assets left. If that’s the case, you might get a few pennies for each dollar you are owed, or you might get nothing at all. The first thing to do is to file a proof of claim form, available from the clerk of the bankruptcy court as soon as possible. If you don’t file a proof of claim on time, you might lose any right to collect for unpaid wages.

Case Studies: Employee Wages in Bankruptcy

Case Study 1: John’s Chapter 11 Bankruptcy

John’s employer filed for Chapter 11 bankruptcy. Despite the financial situation, the employer continues operations without terminating employees. John is worried about whether he will receive his wages. In Chapter 11 bankruptcy, employees who continue to work during the proceedings should be paid for their services. Their wages are considered “administrative expenses” and given a high priority for payment.

Case Study 2: Sarah’s Chapter 7 Bankruptcy

Sarah’s employer files for Chapter 7 bankruptcy, and Sarah is concerned about her unpaid wages. In Chapter 7 bankruptcy, wages owed after the filing receive priority and are treated as “administrative expenses.” However, wages earned before the filing have a lower priority but are still paid before general unsecured claims.

Case Study 3: Mark’s Limited Asset Bankruptcy

Mark’s employer files for bankruptcy, but there are limited assets available to pay employee claims. Mark wonders if he will receive any payment. In cases where the employer lacks sufficient assets, employees may receive only a fraction or no payment at all. It is crucial for employees like Mark to promptly file a proof of claim form to preserve their rights to collect unpaid wages.