My Employer is in Bankruptcy, Can I Still Sue Them?

by Wendell Sherk, Missouri Bankruptcy Attorney

May 20, 2009

The current recession is sending a lot of large companies into bankruptcy, and a lot of employees are affected. If you have a claim of some kind against a bankrupt employer, you have more hoops to jump through.

The most important thing to be aware of is the automatic stay. When a person or a company goes into bankruptcy, in most cases, a stay is created which prevents anyone from collecting a claim against them that arose prior to the filing of the bankruptcy. So whether it is a worker’s compensation or employment discrimination, a personal injury or simply a missed paycheck, all of those “claims” are stopped by the bankruptcy.

In some cases, particularly for regular employees, this will mean that you may be a creditor who will be affected by the bankruptcy and your claim may be included in their case and paid with similarly-situated creditors. If you don’t receive written notice about the case, you may not be a listed creditor. That doesn’t mean your rights are unaffected, it only means the company may not be aware you had a claim. You may want to talk with a bankruptcy lawyer about making sure your claim is properly filed in the case so you can be paid whatever you may be entitled to. (Don’t hold your breath for much.)

It is possible you have other alternatives. For some types of claims, the company may have carried separate insurance coverage, like accident or worker’s compensation insurance. It may be possible to convince the bankruptcy court to allow you “relief from the automatic stay” in order to pursue your rights to the extent of this coverage. A motion for relief from stay will normally have to be filed. Again, you should talk to a bankruptcy lawyer about this option.

And of course if you become aware that your company has filed bankruptcy but you have a lawyer who is not aware of it, make sure you tell them! Most actions taken in violation of the automatic stay are either void or voidable — so your lawyer will be wasting time, and possibly your money, in that case. In some cases, you could be on the hook for the company’s legal fees needed to enforce the stay against you too.

It may not seem fair that large companies get this sort of protection but the idea is that the bankruptcy court has exclusive and complete control over what the company ultimately does to pay back its debts, and what creditors — claimants — can do to the company.

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I have been a bankruptcy attorney since 1989. Our firm represents consumers filing bankruptcy almost exclusively. I have represented bankruptcy trustees as well as creditors. If you live in Eastern Missouri, visit our website, send an e-mail or give us a call (314) 781-3400. Our website: STLBankruptcy.com

Last modified: September 24, 2010