What Will Happen to Your Employees After Bankruptcy?
If you have filed or you are about to file for bankruptcy, you are probably asking how this process will affect your employees. In this guide we’re going to focus on the most important aspects, your staff will want to hear about. Read on and find out what will happen to your employees after bankruptcy.
What to Expect from Your EmployeesWhen they hear the terrible news that their company filed for bankruptcy, and it's probably going to close, employees start feeling the same anxiety that has been hunting you, the business owner, for months. You can expect different reactions from your staff during these troubled times. Most of them will probably try to leave the boat before the ship sinks, but some will remain by your side until the very last moment. No matter what your employees choose, you have to be ready to answer their questions and explain how your company's bankruptcy will affect them.
Here is a list of the most common aspects you should bring to your employees' attention.
They Can Expect Different Outcomes Based on the Bankruptcy TypeAs you probably know by now, two types of bankruptcy procedures are typically available for companies: Chapter 7 and Chapter 11. The first is also called liquidation, and it implies selling your assets to pay creditors, and the latter is a reorganization form that allows you to continue your business while restructuring your debt. While Chapter 11 means that there's still hope for the business to recover and become profitable again, Chapter 7 usually signals the end of a business. Under Chapter 7, you will need to cease operations and automatically dismiss your staff. In this case, the wages employees have earned are protected by the Bankruptcy's Code and considered high priority debts.
Under Chapter 11, you will need employees in order to keep your business going, but you will probably have to retain only the critical roles and lay off or terminate the rest of your staff. The wages earned by the people who stop working for you prior to the bankruptcy will be high priority debts.
Employees' Health and Pension Benefits Will Be Affected by BankruptcyA Chapter7 bankruptcy will most likely terminate these plans. The way these benefits will be treated depends on the provision of the Summary Plan Description which regulates these two aspects.
In Chapter 11, all the agreements regarding the employees' health and pension will be renegotiated.
No matter what bankruptcy procedure the company goes through, employees can apply for unemployment.
What Should Employees Do as the Company Approaches Bankruptcy?If you are about to file for Chapter 7 Bankruptcy, it's only fair that your employees know that they will probably lose their jobs. In this case, the best thing they can do is start looking for another job as soon as possible.
If the company is about to file for Chapter 11, your employees have two options. They can either keep their current job or benefit from a buyout if the company has to reduce its workforce.
After they know what bankruptcy chapter will be filed for and how their status will change, employees should look into their retirement plan. They should check if the amount of money allocated to their plan was registered by the trustee or insurance company. Whichever bankruptcy process you are about to go through, employees are entitled to the entire amount of money that represented their contribution to the retirement fund.
Those employees who are laid off or fired may be eligible for the COBRA coverage, depending on the company's policy. Employees who are terminated due to bankruptcy, have to tell the employer what their coverage plan is within 30 days.
All in all, bankruptcy is always a cause for concern both for you and employees. As a leader, it is your responsibility to keep your people informed and do your best to help them get through this difficult period. Let them know that they will benefit from some protection under the federal bankruptcy laws.