Will Employees Be Paid When a Company Declares Chapter 7 Bankruptcy?


A company that declares Chapter 7 bankruptcy is planning to liquidate and go out of business because it can't meet its financial obligations. While employees of a company in Chapter 7 bankruptcy generally have no guarantee that they will be paid any wages they're owed, they do have a higher-priority claim on the company's assets than many other creditors.

Priority of Claims

  • Secured creditors -- those who loaned the company money for collateral, such as with a mortgage or car loan -- typically have the highest priority in a Chapter 7 bankruptcy. After that, creditors are arranged in order of priority. Unpaid employees of the company are among the groups with the highest priority, near the front of the line for repayment.

Limits on Claims

  • Bankruptcy regulations limit how much of an employee's wages receive priority consideration. As of publication, each employee of a company in Chapter 7 receives priority for $12,475 worth of wages, salaries and commissions earned in the 180 days before the company filed for bankruptcy. This limit adjusts periodically for inflation. Any amount over the limit is treated as a separate claim with lower priority. It's up to the court-appointed bankruptcy trustee to determine how much employees will actually receive.

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