What happens if my employer files for bankruptcy?

In this instance, you, as an employee, are in a better position than most of the employer’s creditors.  Employees are considered “secured creditors” under bankruptcy law, and are therefore given priority if they are owed unpaid wages.  The bankruptcy court supervising the bankruptcy will decide who gets paid what out of the employer’s remaining assets, and unpaid employees are among the first people to get paid. Be sure to contact the Connecticut Department of Labor and file a “statement of claim for wages” if you are owed money.  (This is a good idea any time you are owed money.)

If you have a retirement plan with the company, the plan can be terminated, and accrued benefits may be paid out. Read more here: United States Department of Labor Fact Sheet

The IRS has special rules regarding income reporting for employees whose employer goes out of business, too. Read more on the United States Department of Labor website.

Your unemployment benefits should not be affected by the employer’s bankruptcy, since this money does not come directly from the employer.

However, if you bring a lawsuit against an employer who has gone or is going bankrupt, you may have trouble collecting on your claim.  A corporation can dissolve under the laws of the state, and when it does so, an employee may have to try to show than an individual was his or her employer and get money from this individual.

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