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How Chapter 11 Might Affect Your Employees

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When a business is struggling to pay off debtors, but still has the income necessary to make payments, they may turn to a bankruptcy attorney. Filing for chapter 11 bankruptcy will protect a business from legal action and will give your business time to settle its debts. However, you might wonder what will happen to your employees during this period. While some will be able to continue working, others will be laid off. 

Your Employees Might Be Laid Off and Not Paid

Employee layoffs are a common tactic used for cost-cutting. Any unpaid wages to your employees are now considered to be high-priority debts that must be paid off promptly. Secured creditors will be paid first. Your employees will have a cap for how much they will be compensated that will be adjusted for inflation. Some employees may not receive compensation at all.

If you are concerned about your employees, you will want to contact a bankruptcy attorney prior to filing for Chapter 11 bankruptcy. This will allow you to make decisions that will avoid harming your employees.

Retirement Plans are Not Affected

Retirement plans are funded separately from other forms of compensation for your employees. They are often insured by a third party. 

Pension Plans May Be Affected

If you do not have enough assets to pay an employee's pension, the pension might be affected. However, the Pension Benefit Guaranty Corporation was created to protect pension plans. Read the summary plan description to find out if your workers will be covered under this plan. 

Health Insurance

If you're not sure if your employees will be covered under a health insurance plan, make sure to contact the insurance provider. In some cases, they may lose coverage immediately when they are no longer your employees. 

Chapter 11 Bankruptcy Attorneys

When filing for Chapter 11, make sure to hire an attorney who has experience representing businesses and has not simply represented consumers. They will help you protect your business so you can weather these difficult times and protect your financial interests.

If you are not able to save your business, you may be forced to pursue Chapter 7 or Chapter 13 bankruptcy because the creditors may choose to pursue you directly to seek compensation for your debts. Also, if your financial problems are partially the result of a financial dispute, you may turn to your attorney for help with the commercial dispute. 

For further details, reach out to a local bankruptcy attorney.


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