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What does company bankruptcy do to employee benefits?

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For employees in California who are getting employee benefits, it is quite important to know what is going to happen if the company that is supplying those benefits goes bankrupt. The first thing to know, before even looking at the employee benefits on their own, is what type of bankruptcy is being declared. Two of the most common types are Chapter 11, which deals with reorganization, and Chapter 7, which deals with liquidation.

In some cases, a company that has applied for Chapter 11 bankruptcy is still going to be able to give out benefits as it was before. This is because the company is simply being reorganized and run in a different fashion. It is not gone, and it is still operating as a business entity.

If the company files for Chapter 7 bankruptcy, though, the assets that the company has are going to be liquidated while working on elimination of the debt. After the liquidation, that is probably the end of the line for that company, which will be shut down. When this happens, the benefits that the employees were getting are going to be gone, just like the company that was offering them.

However, it is very important to know everything about how your plan works, as no two situations are exactly the same. This is especially true when it comes to Chapter 11 bankruptcy. If you hear that your company is going bankrupt and you are afraid that you may lose your benefits, you might want to look into all of your legal rights, on a personal level, while this whole process is taking place.

Source: United States Department of Labor, "Fact Sheet: Your Employer's Bankruptcy - How Will It Affect Your Employee Benefits?" Sep. 10, 2014

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