Introduction
Understanding the repercussions of bankruptcy on your employees is crucial when contemplating filing. It directly impacts their rights, compensations, and ultimately, the financial viability of your business. Let’s delve into the effects that Chapter 7 and Chapter 11 bankruptcy can have on your workforce.
How Chapter 7 Bankruptcy Affects Employees
When a business goes through Chapter 7 bankruptcy, the court appoints a Trustee to manage the liquidation of assets, including employee-held benefits.
While employees can retain their previously made 401(k) or retirement contributions, the business is not obligated to provide future payments. In an effort to cut costs, the company may also terminate all health plans.
During the liquidation process, some employees may still receive wages and other support. However, the ultimate outcome is that the business will cease its operations.
How Chapter 11 Bankruptcy Affects Employees
In Chapter 11 bankruptcy, companies can continue operating while undergoing restructuring. This means that some employees may still work and receive their regular salaries. The primary objective is to reestablish long-term financial stability.
However, it’s worth noting that during this process, layoffs are not uncommon as labor costs tend to be one of the largest expenses for businesses. If your company has over 100 full-time employees, you must comply with the Worker Adjustment and Retraining Notice Act (WARN). This requires providing a 60-day notice for any large-scale layoffs or shutdowns.
Employee Eligibility in Both Phases
In both Chapter 7 and Chapter 11 bankruptcies, there are specific criteria that determine the eligibility of employees for certain benefits or compensations. It is important to consult with legal professionals to fully understand the implications for your staff.
Conclusion
As you consider filing for bankruptcy, it’s crucial to bear in mind how it will impact your employees. By understanding the potential consequences in both Chapter 7 and Chapter 11 bankruptcies, you can make informed decisions that align with the best interests of your workforce. Remember to seek legal advice and ensure compliance with applicable labor laws throughout the process.
