San Diego Biz Law APC

We Are The Law Firm That Gets The Job Done. Period.

How does my employer’s bankruptcy affect my wages?

On Behalf of | Sep 27, 2023 | Employment Law

Learning that your employer has filed for bankruptcy can undoubtedly trigger a wave of anxiety among you and your colleagues. You might wonder how this bankruptcy will affect you and if you’ll still receive your wages and benefits.

It’s important to note that, even in the wake of bankruptcy, companies must still pay their employees. However, the type of bankruptcy your employer files affects what happens to your unpaid wages.

Chapter 7 bankruptcy

A Chapter 7 filing implies the business does not have the means to pay its debts. The business will have to cease operations and liquidate its assets. A part of the debts they owe includes employees’ unpaid wages.

You and other employees will become creditors and may file claims at the U.S. Bankruptcy Court. After liquidation, the bankruptcy trustee assigned to your employer’s case will then pay out claims following a specific order. Secured priority claims come first, followed by bankruptcy administration fees and then unsecured priority claims such as unpaid wages.

However, if your employer owes you wages prior to filing for bankruptcy, it could complicate your case. Instead of filing as a creditor, you may have to pursue a civil action or file a wage claim with the Division of Labor Standards Enforcement to get your money.

Chapter 11 bankruptcy

A Chapter 11 bankruptcy means that your employer is reorganizing the company with the ultimate goal of paying creditors. Unlike Chapter 7, businesses that file for Chapter 11 do not liquidate their assets or shut down operations. As a result, the company may continue to operate as normal, and you should continue receiving wages and benefits.

However, the corporation could choose to lay off some employees as part of the reorganization. If the company fires you, you become a creditor, and the company must still pay its debts to you, which include your unpaid wages.

To better understand how you can start claiming unpaid wages, it’ll be good to familiarize yourself with what bankruptcy is. The specific type of bankruptcy your employer files could influence what happens to your unpaid wages. Should you need help claiming unpaid wages or if your employer refuses to pay what they owe you, consider speaking to an attorney.