what happens to employees during wisconsin bankruptcy

When a business is struggling and can’t keep up with routine operating costs, filing for bankruptcy may be the best choice, but it comes at a price: jeopardizing your employees’ financial security. When you file for bankruptcy, your business may need to close its doors which puts your employees’ futures at risk. Here’s what your Wisconsin business bankruptcy lawyer wants you to know about how bankruptcy can impact your employees.

Employees May Be Laid Off

When you file for Chapter 7 bankruptcy, you’re effectively putting all of your business’s assets up for use to settle your debts with creditors. This means you’ll need to close your doors permanently and can’t continue operating the business after you file. Unfortunately, this also means your employees may end up being laid off. They won’t be able to continue working for your business if it no longer exists.

This is often the hardest part of filing for bankruptcy. Doing so means your employees will have to find a new job and may put them in a tight spot financially. With an uncertain economy,

Chapter 11 Bankruptcies May Let Employees Stay On

When you file for Chapter 11 bankruptcy, which is fairly common for many business owners, you may be able to keep your company running under new leadership. It’s up to that new leadership to determine if they want to keep the business operating and if they want to retain the existing employees. 

If new leadership decides to keep things running and wants to retain your employees, nothing much will change for them. They’ll be able to keep working and earning a regular paycheck. New leadership will also have the right to terminate any remaining existing employees. If this is the case, it’s up to the leadership team to issue any severance as they see fit. They’re not required to give your employees anything nor are they required to retain as many employees as possible. 

Independent Contractors Work Can Cease

If your business relies on independent contractors to take care of certain tasks and functions, their contracts will likely be terminated once you file. Since independent contractors are technically operating their own business, they do not have the same legal protections to wages that your employees do. 

That means you may not legally be required to pay them for work rendered prior to your filing for bankruptcy. However, that doesn’t mean you shouldn’t pay them. If you can, pay your contractors what you owe them. Otherwise, contractors may be able to file a claim as a creditor of your business. If they do so, they’ll be some of the last creditors to receive any compensation and, if your assets are not great enough to satisfy your outstanding debt with other creditors, they may not receive anything at all. 

Wages for Hours Worked Are Owed by the Company

Your employees are entitled to wages for the hours they worked prior to your business closing its doors. You’ll want to try to pay them in full if possible. If you can’t or you choose not to, your employees will be added to the list of your creditors. This means they may receive some of the money you owe them, but there’s no guarantee that they’ll receive enough money to cover what their paychecks should be. 

Filing for Bankruptcy Should Be a Last Resort

Because filing for bankruptcy can hurt your employees and may cause them to lose their jobs, it should be a last resort whenever possible. Take a careful look at your finances and see if there are things you can do to improve your business’s financial situation before you file. 

If there is no other option and filing for bankruptcy is the best choice, you’ll want to work with an experienced Wisconsin bankruptcy lawyer. At Kerkman & Dunn, our team is here to help. Contact us to schedule a free consultation.

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