My Employer Filed Bankruptcy! What Do I Do?

by Jay Fleischman, Esq.

February 1, 2009

If an employer goes into bankruptcy, what can employees do to protect themselves?

Employees are not helpless.  Employees have some important rights under bankruptcy and labor laws.

  • Protect your pension plan
  • Protect your health benefits
  • Find out what rights you have under COBRA to continue your health insurance coverage
  • Find out how your health claims will be paid.
  • Assert your rights under the WARN Act
  • File a proof of claim for wages and benefits in the employer’s bankruptcy

In bankruptcy, employees are entitled to special priority treatment to protect their wages.  Benefit plans also are entitled to special protection in chapter 11.  In addition, if a company goes into chapter 7 bankruptcy, the chapter 7 trustee must carry out the duties of the pension or profit sharing plan adminstrator.  You will get a court notice giving you chapter 7 trustee’s contact information.  In chapter 11, you would be in touch with the plan administrator identified in your company’s plan’s “Summary Plan Description.”

You can also get help from the U S Department of Labor which has published a useful Employee Fact Sheet for employees of bankrupt companies.

The WARN Act requires that employees be given at least 60 days notice before plant closings or similar reductions in force.  This may give employees additional rights in bankruptcy.

Lakelaw helps employees in Illinois and Wisconsin in their employers’ chapter 11 or chapter 7 cases.  Other Bankruptcy Law Network attorneys can do the same thing in their respective geographic areas.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.

Last modified: May 7, 2011