When a company files for bankruptcy, employees often face uncertainty about their jobs and financial security, especially regarding unpaid wages and benefits. The Bankruptcy Code provides some protections, but the process and outcomes depend on the type of bankruptcy case. In Chapter 7 cases, the company is liquidated and all employees are laid off. Employees owed wages or benefits as of the bankruptcy filing date may file claims against the company, and certain claims may be entitled to priority treatment under federal law.

In Chapter 11 cases, the company continues operating while reorganizing. The company may file a wages motion to continue paying employees and settle prepetition amounts owed. If no wages motion is filed, wages and benefits earned after the bankruptcy filing are considered administrative expenses. Employees laid off during Chapter 11 proceedings have similar rights to those in Chapter 7, including the ability to file priority claims for unpaid wages and benefits.

Both bankruptcy chapters allow priority treatment for certain claims, such as wages, salaries, commissions, and some employee benefit contributions, up to a statutory cap and within a specific time frame. Employees should also be aware of federal notice requirements under the WARN Act, which may provide additional claims if violated. Navigating these issues can be complex, so employees are encouraged to consult legal counsel promptly to protect their rights and maximize their chances of recovering unpaid compensation. Read full article here.