To begin with, expect the unexpected. All bankruptcies are different.
Don’t Give the Company Any Money Back
Likely your current/former employer owes you money. Even though this is true, they may try to convince you that you actually have to give past paid salary back to them. DON”T DO IT! Also, your company might not be your employer anymore. When a company goes into bankruptcy it is sometimes run by the former owners, sometimes it is place in the hands of a “Trustee” who is supposed to do what is in the best interest of the creditors of the company. When I say “company” I am using it to describe the owners of the company or the trustee.
The Company is going to say we have a “Preference”
There is a concept called “Preference” in Bankruptcy. To the employee, a preference may make you feel treated less like a preference and more like a victim. This is because your company might try to claim the money that you were paid is salary is actually a “Preference” that the company can recover from you. IT”S NOT TRUE.
You have a defense if the Trustee/Owner of the company claims a preference against you and your past paid salary. When payments made in the normal course of business, such as salary payments, they are exempt from being recalled as a preference.
I made it past preferences, now what?
You are now a creditor of your company (that means the company is in debt to you). This sounds great, the company will have to pay you any money you are owed.
If only this was the case… but not that fast. Creditors get their money in order. First, creditors that hold collateral get paid first, after that unsecured creditors (which includes employees) are paid. There may or may not be enough after the secured creditors get their cut that there is anything left for the employees.
Lots of Bankruptcies end up treating employees much better than the previous scenario. A colleague of mine was working at Lehman during the crash of 2008. The whole company knew it was bankrupt, but no one knew what was going to happen. What did happen, was that the employees got paid until they were laid off nine months or so later. Because no work was taking place at Lehman due the bankruptcy, my colleague got smart and used her “work” time to study for the bar exam and head off to law school the following year. Lehman paid for her to study for the bar exam!
When a bankruptcy strikes your employer, you don’t know what is going to happen. Your best bet is to start looking for your exit strategy (unless you are privy to the negotiations and know something about the company’s future plans). Even if you do stay to the bitter end, you aren’t let go with severance. Just unemployment which might not support you for as long as you need to find the next opportunity. Be wise, be smart, be prepared, and if the financial basis of your company is shaky, prepare yourself for whatever your next steps may be.
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Author: Aimee Haynes
I motivate, I blog, I listen, I give advice, I help, I create, I work with others, I stand my ground when needed, and I am always open to new ideas. In addition to the qualities that define me most, I'm also a Corporate Law attorney working with entrepreneurs, creatives, and small businesses to help them achieve success.