Skip to Content
We Speak English, Spanish and Farsi 213-344-0043

What happens if the company you work for files for bankruptcy? Will you be protected? Will you need to find a new job? Below we outline what can happen if your employer decides to file for bankruptcy. 

Options for Business Bankruptcy

When a company files for bankruptcy, they can either file for a Chapter 11 or Chapter 7 bankruptcy . Under Chapter 11, a company is able to pay off their creditors and keep their doors open at least during the bankruptcy proceedings. But if the company files under Chapter 7, the company will cease all business operations. Assets will be liquidated in order to pay off the company’s debt. 

Employee Protection

During bankruptcy proceedings, the rights of the company, including its employees and its debtors are protected. Under Chapter 11, the wages and benefits of the employees will be preserved. Under Chapter 7, employees are supposed to receive notification of the filing in addition to contact information for the benefit plan trustee who is responsible for the overseeing pensions and any profit sharing. Employees who are terminated under Chapter 7 are legally supposed to receive unemployment benefits as long as they meet certain requirements.

What to Do

Your next steps are greatly reliant on the form of bankruptcy your employer has filed for. Under Chapter 11, a company is usually able to continue operations after it pays off some of its debts and operating costs.  You will most likely be able to keep your job. But when a company liquidates through Chapter 7, its most likely that your job will disappear. You might be able to benefit from the Bankruptcy Code which says that any wages employees have earned are given higher priority than paying off the company’s debts.  There are also government laws in place, such as the The Federal Employee Retirement Income Security Act (ERISA) which protects pension assets. While it’s not a good place to find yourself in, there are federal bankruptcy laws in place to help provide protection of employees’ earned wages, pension assets, and health insurance benefits.

Share To: