Payment of Employee Wages In Bankruptcy Cases

Recently, I posted on executive severance payments in bankruptcy cases.  Click Here to read that post. 

Now let's talk about wages.

There are two types of wages that are at issue in bankruptcy cases: 1) pre-petition wages; 2) post-petition wages.

Pre-Petition Wages Due By Bankrupt Companies

These are wages and compensation that became due (and were unpaid) prior to the date of the bankruptcy.  This would include regular wages, severance pay, the value of unpaid benefits, accrued vacation and the like. 

Post-Petition Wages Due By Bankrupt Companies

These are wages and compensation that become due after the date of the bankruptcy.  This would also include regular wages, severance pay, the value of unpaid benefits, accrued vacation and the like.

How Are Pre-Petition Wages Paid in Bankruptcies?

For employees who are no longer employed, they are typically paid just like claims to all other creditors - EXCEPT: the first $11,725 due are treated as priority claims, thus giving you a leg up on most other creditors.  See 11 U.S.C Section 507(a)(4).  If you fall into this category, make sure you check off the appropriate priority box when you complete your Proof of Claim.

For employees still employed as of the date of the bankruptcy (and thereafter), they are entitled to the same priority claim; however, many employers will file a motion with the bankruptcy court seeking permission to bring their obligations to such employees up to date before the reorganization is completed. 

How Are Post-Petition Wages Paid in Bankruptcies?

For employees who remain employees after the bankruptcy filing, wages owed are usually deemed Admistrative Expenses, and typically the Bankruptcy Judge will permit the bankrupt company to pay those wages on an ongoing basis while the reorganization is being planned. See  11 U.S.C. Section 503(b)(1)(A). 

Bankruptcy law is very complicated, and you should not by any means treat this post as legal advice!  Rather, if you have a claim for wages against a bankrupt company, you should seek out legal advice from a qualified attorney.

John A. Gallagher, Philadelphia Area Wage Lawyer, 601-647-5027

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