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HR obligations when businesses file for bankruptcy

One of the most difficult decisions any business owner here in Kentucky can face is whether to file for bankruptcy when financial obligations become overwhelming. The decision not only affects the owner but their employees as well.

Depending upon the situation, businesses under financial stress will likely choose between two types of bankruptcy. Chapter 11 reorganizes the debt, but companies can still operate, usually with reductions to staffing and other expenses. Chapter 7 liquidation affects everyone as the business will be sold for the benefit of creditors.

Human resource actions during bankruptcy

Before filing for bankruptcy, businesses should seek the advice of experienced attorneys when tough decisions have to be made. Some of the HR concerns include:

  • Communicating with staff: The first HR step should be to inform staff of the bankruptcy filing and the impact it will have. This should happen as soon as possible.
  • Reducing workforce: Layoffs under Chapter 7 must meet state and federal standards. The Worker Adjustment and Retraining Notification Act requires employers with at least 100 employees to give 60 days’ notice or wages in the event of a mass layoff. In a Chapter 11 filing, HR must work to keep employees considered essential to the business’s future.
  • Retirement plans: Pensions and 401(k)s must be funded and cannot be liquidated under Chapter 7 bankruptcy.
  • Health care plans: All coverage is terminated under Chapter 7. Companies can elect to remove coverage under Chapter 11 but face potential consequences if they violate the Patient Protection and Affordable Care Act.
  • Unpaid wages: Workers who aren’t paid all the wages owed become creditors in the liquidation process.
  • Severance pay: Employers cannot pay benefits to senior officers or managers unless they are also available to full-time employees. Payments to senior employees cannot be 10 times greater than non-management workers.

An organized approach to bankruptcy can ease pain

Bankruptcy is a stressful time for business owners and their employees. An experienced bankruptcy attorney in Kentucky can help owners come up with a plan to regain their financial independence as well as meeting federal and state guidelines to help ease the strain for their workers.


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