Insolvency – What rights does the employer have?



Bankruptcy is a legal process that allows an individual or company to get out of their debt and give creditors an opportunity to repay.

Rights of an employee when the employer/company faces bankruptcy

In cases where business owners run out of money and have filed for bankruptcy, employers may be at risk of losing their jobs. The employee needs to know what type of bankruptcy is filed in such circumstances. The type of bankruptcy filed determines how employees are paid, what benefits they can still receive, and what other requirements must be met. The assistance of a business lawyer will help them find the best option

types of bankruptcy

Bankruptcy is dealt with in federal courts. The Company may hire an attorney to handle bankruptcy matters.

There are different types of bankruptcies, commonly named according to their chapters. Chapter 7 requires the liquidation of all assets. The business owner sells all assets to pay off debts and other loans. Chapter 11 essentially serves to reorganize the company. The company’s standard operations or business are usually maintained along with most employees. The additional expenses, excess debt, operating expenses, and other expenses are generally paid off. The company or business is restructured again.

An employee needs to know the nature of the bankruptcy filed by the owner. In a Chapter 7 bankruptcy, the business owner may be in so much debt that they must liquidate all assets, resulting in the firing of all employees. In a Chapter 11 bankruptcy, some assets or part of the business are liquidated to pay off the debt. The main goal is to reorganize and rebuild the business by removing any additional non-profitable expenses to make it profitable again. This requires the company to restructure to eliminate as many lost revenue and profits as possible. If the entire department fails to make progress or make the required profits, it may be disbanded or downsized. This leads to the loss of jobs for all or some mostly new employees.

Even on the brink of bankruptcy, some companies are still hiring, and when they file for bankruptcy, hundreds of workers lose their jobs each year. And if a company doesn’t have enough funds, they can’t receive their salaries and other outstanding paychecks. If the affected employee is a new worker hired through an agency or union, they may continue to receive their due income. But the new workers, hired directly without a union or agency, are unlikely to receive their payments if funds aren’t available.

legal advice

In the event of bankruptcy by Chapter 7 filing, the employee may not receive compensation for lack of funds unless the owner opens a new business after the bankruptcy proceedings are completed. Also, owners are required to broadcast 60 days before the layoffs. Therefore, legal support from a business lawyer is important. The attorney will guide the employee through the legal formalities and help them explore the best options for viable compensation claims. “To strengthen your claim and reassess the legal formalities of whether you, as an employee, can make a claim against your former employer who has filed for bankruptcy, hiring a legal expert is the best approach,” said Attorney Justin Gillman of the Gilman Bruton Capone Law Group.


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