Filing for bankruptcy is a difficult decision for any business owner, but it is often a necessary step. One pressing concern may be what happens to your employees.
This largely depends on the type of bankruptcy you file for and the route you want the company to take. However, there are several different possibilities. Here are three common options for your employees during a business bankruptcy.
Employees can be kept on
If you file Chapter 11 bankruptcy, then you may be able to keep your employees on. Chapter 11 involves a reorganization plan that allows you to pay off your debts while continuing to operate. With that being said, some cutbacks will likely be needed. You may need to reduce salaries, decrease overtime and reduce hours. The most important thing is that you are open and transparent with your workers about the reorganization plan.
Layoffs may be necessary
If you are filing a Chapter 7 bankruptcy, then you will need to lay off employees. Chapter 7 involves liquidating your assets to pay off creditors. If you are going down this route, you will need to comply with the WARN Act and other relevant laws. You’ll most likely need to fulfill wage obligations and severance agreements but this depends on the liquidation proceeds.
Layoffs may only be temporary
Layoffs might only be needed until the company stabilizes again. Often, investors help companies who are in financial trouble. If this happens, you may be able to rehire your key staff.
Before filing for bankruptcy, it is important to understand all of your options. This is not a decision that should be taken lightly. To ensure you are well-informed, it will be beneficial to seek legal guidance.