In today’s economy, it’s no longer enough just to watch after your own finances. For many people, one of the most alarming moments isn’t managing their own budget, but discovering that their employer has filed for Business Chapter 7 bankruptcy. Unlike Chapter 11, Business Chapter 7 means that your employer is shutting down and terminating payments and benefits. Indeed, your employer’s bankruptcy has the potential to be a logistical nightmare in more ways than one, so it’s important to understand exactly how your rights and assets are protected.
Fortunately, employees must be notified at least 60 days before a closing or reduction in the labor force, in accordance with the WARN act. This notice window provides employees additional time to seek their rights during the bankruptcy. For those with health and pension plans with an employer filing for Business Chapter 7 Bankruptcy, some common questions include:
- Will the plan continue or will it terminate?
- How will a pension plan be paid in the event of a termination?
- Who will be the administrator of my pension plan?
- I have outstanding health claims – how will these be paid if the health plan is terminated?
To learn the answers to these questions about your employer’s bankruptcy, seek the advice from your plan’s administrator or your union representative. Also, documents such as a Summary Plan Description or Summary Annual Report should detail in writing what happens to your pension and health plans in the event of an employer bankruptcy. Even if your employer files for Business Chapter 7, it’s vital to keep your individual benefit statements, as these show the value of your saved pensions.
The law protects the following benefits from a Business Chapter 7 bankruptcy:
- Your 401(k). Since these assets are held in separate trusts that are protected from creditors, you won’t have to worry about losing what you’ve saved. However, an employer filing for Business Chapter 7 may discontinue their matches. Also, any loss in company stock is not protected.
- Your pension plan. The Pension Benefit Guaranty Corporation protects employees from an employer bankruptcy by guaranteeing $51,000 per person in the event of an employer that can no longer pay its obligations.
- Health insurance. While this isn’t set in stone for a Business Chapter 7 Bankruptcy, employers who file for Chapter 11 may still offer health insurance. Furthermore, COBRA provides protection and coverage for up to 18 months.