Businesses file bankruptcy for the same reason people do, to get out from under their debts. Filing Chapter 11 enables a company to discharge, or wipe out, enough of its debts to stay in business. Even if the company isn't firing workers, employees may be concerned how Chapter 11 affects their pay and their benefits.
Chapter 11 enables a business -- whether a sole proprietorship, a partnership or a corporation -- to work out a five-year payment plan for its debts. The business, the bankruptcy judge and a committee of the company's largest creditors will draw up the plan to ensure the company pays off as much of its debts as possible without going out of business. When the plan ends, the court will discharge most of the remaining debt.
If your employer files for Chapter 11, wages you're owed for the 90 days before the filing represent a priority claim on the company. That means they take precedence over many of the other creditors' claims. If you still have your job, your wages for work performed after the company files are ranked as an even higher priority. If your wages for the 90-day period aren't paid on time, contact the bankruptcy court to obtain a claim form.
An employer can cut health-plan benefits under Chapter 11 or cancel health-insurance benefits completely, but it can't cut or cancel benefits for some employees and not others. If the company cancels one plan, the U.S. Department of Labor states, you may be allowed to switch to another employer plan or to your spouse's plan even if you couldn't normally do so. If you lose your job because of the bankruptcy, you can keep your insurance under the Consolidation Omnibus Budget Reconciliation Act (COBRA), which allows you to stay on your employer's plan by paying the entire premium yourself.
If you have a pension plan, your employer is obligated to pay you the full value of the plan, even if the company files Chapter 11; the plan is also insured by the federal government. Although 401k plans are not insured, any money withheld from your wages and not yet paid into the plan is treated as a priority claim.
If there's a problem -- your 401k contributions haven't been deposited, or your unpaid health claims aren't taken care of -- you can contact the Department of Labor. The department's Employee Benefits Security Administration has a hot line at 1-866-444-3272 or you can contact the agency online.