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Company has filed chapter 11 bankruptcy, how do we get the wages owed to us?

Minneapolis, MN |

The home health care agency I work for has just filed for chapter 11 bankruptcy, how do us employees receive the wages owed to us? My last check has bounced, and have not received pay for this pay period. A representative of the company has told us there is 3 million in their account, but it is frozen, and will be released once the bankruptcy petition is granted. This is not to mention that the company had already been 6 weeks out. Any hope here?

In addition, what happens to the taxes that have came out of my paycheck?

Attorney Answers 5


Sorry to hear this, but based on your last post it's not surprising. Claims for unpaid wages, which are priority claims, will be paid in the chapter 11 plan (subject to caveats below), but it's going to be a long time. See and skip down to the last bold heading.

By a wide margin, most chapter 11 cases fail, however, and are converted to chapter 7 liquidation cases. In that scenario, which you should accept as most likely, esp. if there was fraud by insiders, you will not be paid in full.

Post-petition claims for wages are administrative claims, or highest priority--above priority claims, which are next. So it's up to you whether you want to stay there. My advice is to bail, esp. with rumors of fraud. See 11 U.S.C. sec. 503(b)(8) (according administrative status to certain expenses relating to closure of a health care business). In addition, if there has been Medicare fraud, then most likely a chapter 11 trustee will be appointed to run the business and investigate things. See and search for "allegations of fraud." It's going to get really ugly with a new sheriff in town--investigators, the whole bit--and these costs will eat into any assets left to pay your wages, since the trustee's expenses are administrative.

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The good news is that the company filed a Chapter 11 Reorganization, and not a liquidating Chapter 7. The other good news is that your employment is in the health care field which is doing a little better than many industries are right now. Even more good news, there appears to be a "war chest" of 3 million to help in the reorganization process. Be patient. Work hard. Help you company be profitable and successful. Since there is money available (crossing my fingers here), the employee claims for wages will receive a high priority, meaning that they will be paid before most other unsecured creditors that the company has. The higher up the priority ladder, the greater the likelihood that you and your coworkers will be paid for services rendered. The security of your future earnings depends on the success of the company going forward. Rally your co-workers around the cause to bring the company financially back into the black as soon as possible. Good Luck!

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From your question it seems the company intends to continue operating. To do that it will need employees. To keep those employees, it will likely ask the Court for authority to pay the pre-petition wages. Pre-Petition refers to the time period before the bankruptcy petition was filed. Pre-petition wages cannot be paid until the Court grants the Debtor permission to do so. The process takes some time, but I would expect the Court to hear and decide the motion within 30 days of the petition filing. Visit the bankruptcy courts webpage for the District of Minnesota for more information about the filing. You may want to obtain a copy of something called a Case Summary that is filed early in the bankruptcy. That pleading gives an overview of the company, why it filed for bankruptcy, its Debts, and something about what it plans to do to reorganize. Many companies successfully reorganize, or at least give it their best shot. If the company does not pay the pre-petition wages, then you will need to file a Proof of Claim down the road. The bankruptcy court webpage will have more information. Good luck to you and the company.

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Yes, but nothing immediate. The good news is that a Chap. 11 means the company is at least planning, at the moment, to remain in business, which means they will need employees to continue to work. That means that they will have to ask the court for permission to continue to pay their employees, which is routinely granted. So, your paycheck should eventually catch-up. The taxes already taken out of your check should be forwarded to the government as usual, but I've seen examples where that doesn't occur. You, ultimately, are responsible for the payment of your tax liabilities, not your employer. If for some reason they are not paid to the government, you'll be on the hook for it.

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If the company is granted the authority to pay prepetition wages, then you will get paid fairly soon. IF not, you need to make sure you file a claim in the chapter 11 estate. Wage claims have one of the highest priorities, and get paid ahead of other unsecured debts. Payment on claims takes a long time, however, so your best hope is they are granted permission to pay the prepetition wages and withholding.

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Thank you, very much.

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