Does bankruptcy mean I lose severance?

I was laid off from an IPO start up company on Dec 18, 2000 during this time I signed an agreement stating I would be paid for my remaining vacation time and 2 weeks severance pay. The company filed Chapter 11 on Dec 20, 2000 does this mean they are no longer obligated to pay me?

2 answers  |  asked Mar 15, 2001 8:29 PM [EST]  |  applies to New York

Answers (2)

David M. Lira
It depends on assets and priority

Your question is really more of a bankruptcy question than an employment question, and the answer to your question is "It depends."

What it depends on is the company's total assets compared to its total debt. It also depends on what type of priority your claim might be entitled to under the bankruptcy law.

You still might end up getting something, although it might not be 100 percent of what you are owed.

You should have received or be getting a notice of the bankruptcy from the bankruptcy court. The notice will include a form on which you can provide details about your claim. You should complete the form, and file it with the bankruptcy court. If you fail to do so, you would be entitled to nothing.

If you do not get a notice from the bankruptcy court, then you have not been listed as a creditor. If a debtor fails to list a creditor, that creditor's claim will not be discharged under the Chapter 11 plan. As a result, you would be able to at least sue for all of what you are entitled to. You have 6 years to commence a suit to collect. Depending on the amount involved, you could even bring the suit in Small Claims Court.


David M. Lira
Attorney at Law
595 Stewart Avenue
Suite 510
Garden City, NY 11530
(516) 222-2777
FAX: (516) 222-2971

posted by David M. Lira  |  Feb 19, 2001 2:15 PM [EST]
Craig J.J. Snyder
Bankruptcy laws protect wages, but not severance p

Generally, an employer who files Chapter 11 still has an obligation to pay employees for work that was performed, but it may take significant time before it does so. Under bankruptcy law, wage claims enjoy a very high priority among the debts of a bankrupt company. Severance pay and vacation time may be a different story. If they are not considered wages for work performed, the bankrupt employer may be able to avoid paying them (at least not in full). You mentioned a contract. What did you agree to?

I do not believe that the bankruptcy prevents your filing for unemployment compensation and that may be the best alternative.

posted by Craig J.J. Snyder  |  Feb 19, 2001 1:55 PM [EST]

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