If a company declares Chapter 11 bankruptcy, often referred to simply as business bankruptcy, it doesn’t mean they’re going out of business. In fact, the opposite is true. That said, there can be serious impacts on the way the company operates on a daily basis – including how the employees are paid or whether they are at all. Read on to learn about unpaid wages and how they’re treated in bankruptcy. If you have further questions, reach out to The Law Offices of Paul Y. Lee at 951-755-1000 and request a free bankruptcy consultation.
Chapter 11 doesn’t dissolve the obligation to pay employees
The first thing that employers should know is that filing Chapter 11 bankruptcy doesn’t mean they don’t have to keep paying their employees. It does not relieve them or alter their typical obligation to pay their employees. They must continue to send paychecks for the normal amount and at the normal time.
Not paying employees during business bankruptcy could result in serious consequences
If a company doesn’t pay their employees while going through a Chapter 11 bankruptcy, there are a number of consequences they could be facing. The Department of Labor could investigate the company in question and it’s possible that criminal charges would be filed. The bankruptcy court could dismiss the case entirely, or appoint a trustee to take over the finances of the company.
Employees are also likely to quit if they’re not getting paid, which can devastate a company. When your employees leave during a trying time, it can be difficult or impossible to maintain stability within the company.
Employees laid off during bankruptcy may have special priority
In the event an employee is laid off when a company files Chapter 11, or before they do so, then they will effectively be lumped in with other creditors who are owed by the company. However, in most cases, employees claims will be priority claims, which means they’ll be paid ahead of other claims. This includes all wages that the employee earned in the 180 days leading up to the business bankruptcy filing, up to as much as $12,850.
Note that the bankruptcy court considers wages to include severance pay, commission, salary, paid sick leave the employee was entitled to, and vacation pay. If you are planning to file business bankruptcy, then it’s important to take into consideration that you will be fully responsible for paying the money owed to these employees.
Do you need additional help from a bankruptcy attorney?
The reality is that bankruptcy is not a simple process, whether you’re an individual or a business. If you believe that it may be in your best interest then we encourage you to reach out to The Law Offices of Paul Y. Lee at 951-755-1000. We will start with a free bankruptcy evaluation in which we’ll consider the basics of your case and give you our best, honest opinion about what’s best for your situation. Reach out today and let us help you move forward.
