It can be unsettling if you hear that the company you work for has filed bankruptcy. Many employees assume that if their company filed bankruptcy, they are not going to get paid. While this may be true, it is not always the case. A bankruptcy filing does not necessarily mean that you will not receive unpaid wages. This will depend on what type of bankruptcy your employer has filed and where you rank on the list of those who are owed money.
CHAPTER 11 BANKRUPTCY
If your company filed a Chapter 11 bankruptcy they are seeking legal relief from its debts while it reorganizes. The company intends to stay in business. If you are a current employee, your paychecks should not be interrupted. Your company still has a legal obligation to pay you even if they filed a Chapter 11 bankruptcy. If, however, you are not getting paid, you may want to start seeking employment elsewhere. Layoffs are very common in a Chapter 11 bankruptcy because it is a fast way to reduce expenses. If you are owed wages, you will have to file proof of claim with the bankruptcy court in order to get paid.
When you file a proof of claim with the bankruptcy court, you become a creditor of the company. The court will prioritize the creditors in the order they should be paid. If your unpaid wages were earned in the 180 days before the bankruptcy filing, you will be paid as a priority. While this does not necessarily mean that you will be paid first, it does mean that you will be paid before some other unsecured debts. The amount, however, is limited to $13,650. If the unpaid wages were earned more than 180 days before the bankruptcy filing your wages will not be considered a priority.
CHAPTER 7 BANKRUPTCY
If your company filed a Chapter 7 bankruptcy, it intends to cease operations. This means they are closing their doors. The process to get paid is the same as in the Chapter 11 bankruptcy (see above). You will need to file a proof of claim with the bankruptcy court. In a Chapter 7 bankruptcy, the court will sell assets to pay off the creditors. If the company does not have any assets of has very little, you may not be paid. File your proof of claim as soon as possible to put the court on notice.
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