Estimated reading time: 17 minutes

If your employer filed for bankruptcy, this guide explains employee rights employer bankruptcy in plain English. Learn how the priority of unpaid wages bankruptcy works, what to claim (wages, PTO, severance, WARN, pensions), and how to file proof of claim bankrupt employer before deadlines. We break down documents to gather, step-by-step filing instructions, and when to get legal help—backed by authoritative sources and real-world examples.

Key Takeaways

• Employees have special “priority” rights for wages earned in the 180 days before the case or business shutdown—up to a statutory cap per person.

• Severance may qualify for wage priority only if it was earned within the 180-day window under the employment agreement; otherwise it is usually unsecured.

• WARN Act back pay and benefits often track wage-priority rules but can vary by court and case—calculate carefully and file timely.

• 401(k) assets are generally held in trust and protected; pension claims may involve PBGC or unpaid employer contributions you should assert.

• Filing a complete, timely proof of claim with supporting documents is essential; missing the bar date can forfeit recovery.

Table of Contents

• Introduction

• Types of Bankruptcy and Why It Matters to Employees

• What Counts as an Employee Claim?

• Priority of Unpaid Wages — Legal Rule, Calculations and Examples

• Worked Examples

• What Counts Toward the 180-Day Window

• Exclusions and Special Cases

• How to File a Proof of Claim Against a Bankrupt Employer

• Step 1 — Identify the Case

• Step 2 — Find the Claims Bar Date

• Step 3 — Use the Correct Form and Where to File

• Step 4 — Documentation to Attach

• Step 5 — How to Assert Priority on the Form

• Step 6 — Delivery and Follow-Up

• Sample Proof-of-Claim Paragraph

• Recovering Severance After Bankruptcy — Rules, Examples and Practical Approaches

• How Severance Is Treated for Priority

• Examples: When Severance Is “Earned”

• Practical Approaches and Negotiation

• WARN Act Claims in Bankruptcy — Explanation and Filing Tips

• WARN Basics and Benefits

• WARN Claims Priority and Case Outcomes

• How to Calculate a WARN Claim

• Pension and Retirement Claims — Protections and How to Act

• Defined Contribution vs. Defined Benefit Plans

• Unpaid Employer Contributions

• Practical Steps for Pension Claims

• Practical Checklist and Timeline for Employees

• Immediate Actions (Day 0–7)

• Short-Term Actions (By Bar Date)

• If You Are a Union Member

• Ongoing Monitoring

• When to Get Legal Help for Employee Rights Employer Bankruptcy Issues

• Conclusion

• FAQ

Introduction

If you are facing unpaid paychecks or lost benefits because your employer has filed for bankruptcy, understanding your employee rights employer bankruptcy is urgent. Bankruptcy changes how and when employees can be paid, but it also provides powerful protections if you act quickly and file the right claims.

In this guide, you will learn what counts as an employee claim (unpaid wages and overtime, accrued vacation/PTO, severance, WARN Act back pay, and pension-related claims), how the priority of unpaid wages bankruptcy works, and how to file proof of claim bankrupt employer to preserve your rights. We will walk through practical steps, calculations, and timelines so you can maximize recovery.

The stakes are high. Courts and trustees follow strict rules and deadlines, and employees who fail to file risk getting nothing. For a high-level overview of employer bankruptcies and the issues workers face, see the legal analysis in Employer issues in bankruptcy and the employee-friendly handbook Bankruptcy basics for employees. You can also review the federal structure and creditor-payment hierarchy explained in the CRS report on bankruptcy.

To go deeper after this overview, consider our in-house explainer on employer bankruptcy employee rights for more workplace-focused examples and links to related wage, benefit, and severance resources.

Types of Bankruptcy and Why It Matters to Employees

Most employers file under Chapter 7 (liquidation) or Chapter 11 (reorganization). In Chapter 7, a trustee gathers and sells the company’s assets and distributes the proceeds to creditors under the priority rules. The business usually shuts down, meaning further employment is unlikely and employees focus on recovering what they are owed from the estate.

In Chapter 11, the company attempts to restructure and continue operating. Ongoing wages after the filing can be paid in the ordinary course, and the company may assume or reject contracts and benefit plans. Employees will still need to file claims for prepetition amounts owed, and in some cases may seek administrative or priority treatment for certain post-petition obligations.

All property, cash, and legal rights the employer has become part of the “bankruptcy estate,” which is managed by a trustee (Chapter 7) or debtor-in-possession (Chapter 11). Who gets paid, and in what order, follows federal statutory priorities. For a concise overview of that structure and employee implications, review the CRS report on bankruptcy. When in doubt, employees should still file a claim to participate in distributions.

What Counts as an Employee Claim?

Employees commonly have several types of claims against a bankrupt employer. Understanding each category helps you assemble the right proof and assert any priority rights you have. The definitions below align with employee-oriented resources like Bankruptcy basics for employees and the practitioner analysis in Employer issues in bankruptcy.

• Unpaid wages/salaries (including commissions and bonuses if earned): Compensation already earned for work performed before the filing or business closure. This includes base pay, earned commissions, and, in many states, accrued vacation pay recognized by policy or law. Amounts earned within 180 days before filing or cessation may qualify for wage-priority treatment up to the statutory cap.

• Accrued vacation and PTO: If your employer’s policy or state law treats accrued vacation/PTO as wages, it can be included in a wage claim. Whether PTO qualifies for priority often depends on whether it was “earned” during the 180-day priority window.

• Unpaid benefits: Premiums or contributions the employer owed for health or other benefits before filing can be part of your claim. Also consider COBRA and benefits-continuation issues; our guide on COBRA rights after termination explains coverage timing and election responsibilities if you recently lost your job.

• Severance: Payments promised under contract or policy upon termination. Whether severance qualifies for wage priority turns on when it was “earned” under the agreement, as explained below.

• WARN Act back pay/benefits: If an employer with 100+ employees failed to give 60 days’ notice for a mass layoff or plant closing, affected workers may claim back pay and benefits. Treatment can track wage-priority rules, but courts vary. See our separate section and the dedicated overview of WARN Act notice requirements.

• Pension and retirement-related claims: Defined contribution plan assets (like 401(k)s) are typically held in trust and not part of the bankruptcy estate. Claims can arise if the employer failed to remit contributions. Defined benefit plans (traditional pensions) may involve the PBGC. See DOL: Your employer's bankruptcy for plan protections and steps to take.

If your last paycheck bounced or never arrived, you can also review our final paycheck laws guide and broader wage-recovery guidance in how to file a wage claim to organize evidence that will support your bankruptcy claim filing.

Priority of Unpaid Wages — Legal Rule, Calculations and Examples

Federal law gives employees a statutory priority for certain wage-related claims. In plain terms, wages earned within 180 days before the bankruptcy filing or the employer’s cessation of business are “priority claims” up to a cap per employee. This priority means you stand ahead of most unsecured creditors for that slice of your claim. The overall structure is explained in the CRS report on bankruptcy.

As of recent guidance cited in employee resources, the cap is $15,150 per employee (subject to inflation adjustments). Confirm the current cap as it is periodically updated. The City Bar’s primer summarizes the priority window and cap in Bankruptcy basics for employees, and the practitioner perspective in Employer issues in bankruptcy echoes the timeline and limitations.

How the 180-day window works is critical. You count back from the earlier of (a) the bankruptcy filing date or (b) the date the employer ceased business. Wages “earned” in that look-back window get priority up to the cap. Amounts earned before that window are still claims, but they are general unsecured and paid only after priority and secured creditors—often at pennies on the dollar or not at all, depending on the estate’s assets.

Worked Examples

• Example A — All wages fit within the cap: Employee A earned $10,000 in the 180 days before the filing. The entire $10,000 is a priority claim, because it is within the window and under the cap. If there is money for priority creditors, A should be paid before most unsecured creditors.

• Example B — Cap exceeded: Employee B earned $25,000 in that same 180-day period. The first $15,150 is a priority claim. The remaining $9,850 is a general unsecured claim. B should file for both parts and show the split on the claim form.

What Counts Toward the 180-Day Window

“Wages” is broad. It can include base salary, hourly pay, earned commissions and bonuses, and, in some jurisdictions, accrued vacation/PTO if treated as wages. Severance may count toward wage priority only if it was “earned” within that same 180-day window under the terms of the employment agreement. If the severance accrual or entitlement arose earlier, the severance claim will more likely be unsecured.

Amounts earned earlier than 180 days remain claims but lose priority status. Always calculate the timeline carefully and support it with pay records. The City Bar handbook offers practical tips on calculating earned wages and documenting entitlement in Bankruptcy basics for employees.

Exclusions and Special Cases

• Independent contractors: The wage-priority statute is for “employees.” Independent contractors generally do not qualify for this wage priority. They should still file claims, but those claims are typically unsecured.

• Insiders and executives: Payments to insiders may face extra scrutiny or different treatment. Courts can recharacterize or subordinate claims in some circumstances.

• Benefit plans: Certain benefit-related claims can involve different rules or separate statutory priorities (e.g., for contributions). Coordinate with plan documents and see the pension section below.

If you believe your classification was wrong and you were misclassified as an independent contractor, review our guide on misclassification and your rights to understand supporting evidence you might include with your bankruptcy claim to establish employee status.

How to File a Proof of Claim Against a Bankrupt Employer

Filing a proof of claim is the formal way to notify the court, trustee, and debtor that you are owed money. If you do not file a claim by the deadline (the “bar date”), you may be barred from any recovery—even if the employer obviously owes you. The City Bar’s employee guide stresses this point and provides a helpful overview in Bankruptcy basics for employees.

Step 1 — Identify the Case

Find the bankruptcy case number, debtor’s exact legal name, and filing court. Look at mailed “Notice of Bankruptcy” documents you received or search the federal docket:

• PACER: Create a free account at PACER, search by employer name, and confirm the correct case (district, Chapter 7 vs 11, filing date).

• Court website or claims agent: Larger cases appoint a claims agent with a dedicated case website listing filings, deadlines, and claim instructions.

Be precise—using a parent company name or affiliate by mistake can cause your claim to be misrouted. If multiple related entities filed, you may need to file in more than one case depending on who employed you.

Step 2 — Find the Claims Bar Date

The bar date is the key deadline to file your claim. It appears on the Notice of Bankruptcy or in a later court order. Missing the bar date can forfeit your recovery. The importance of deadlines and careful documentation is emphasized in Bankruptcy basics for employees.

Step 3 — Use the Correct Form and Where to File

Use Official Form 410 (Proof of Claim) for U.S. bankruptcy courts. Many cases allow electronic filing through a claims agent portal; others require filing with the court clerk. Always follow the instructions in the Notice of Bankruptcy for where and how to file. Key boxes on Form 410:

• Claim amount: State the total owed as of the filing date. You can attach a worksheet for clarity.

• Basis of claim: “Unpaid wages, accrued vacation/PTO, severance, and benefits” (plus “WARN Act” if applicable).

• Priority designation: Check the box for priority and specify 11 U.S.C. §507(a)(4) for wages and §507(a)(5) for certain contributions, with a dollar breakdown (priority vs unsecured).

Step 4 — Documentation to Attach

Attach clear, organized proof. In addition to the form itself, include:

• Pay stubs covering unpaid periods, showing dates, hours, gross/net pay, and year-to-date totals.

• Your final pay statement, termination letter, and the last day worked.

• Your offer letter, employment contract, or written severance agreement or policy language showing entitlement and calculation method.

• Any WARN notice (or a statement that no notice was provided) and the date of layoff or plant closing.

• Pension/retirement plan statements, SPD/plan documents, and records of employer contribution obligations.

• W-2s (or 1099s if misclassified—explain why you are an employee).

• A calculation worksheet with dates and line items, showing the portion within the 180-day window and up to the cap.

• A signed declaration under penalty of perjury that the facts are true and correct.

Accuracy and completeness matter. The City Bar handbook underscores careful proof and correct math in Bankruptcy basics for employees. If you have severance or complex benefits claims, consider having counsel review. Our severance agreement review guide explains how to read and preserve key severance terms that affect bankruptcy treatment.

Step 5 — How to Assert Priority on the Form

In the priority section of Form 410, use clear, statute-based language. For example:

“This claim asserts priority under 11 U.S.C. §507(a)(4) for unpaid wages earned within 180 days of the petition date or business cessation, up to the statutory cap. Priority portion: $X. General unsecured portion: $Y. To the extent applicable, this claim also asserts priority under 11 U.S.C. §507(a)(5) for contributions to an employee benefit plan.”

The priority structure is summarized in the CRS report on bankruptcy and applied to employee claims in Bankruptcy basics for employees. If you are also asserting WARN, label the WARN amount and explain the calculation (see WARN section below).

Step 6 — Delivery and Follow-Up

File through the claims agent portal if available; otherwise mail or deliver to the court clerk. Use certified mail or another trackable method and keep originals. Save the confirmation page or stamped copy. Monitor the docket for any objection to your claim. If the trustee or debtor objects, respond in writing by the deadline and consider getting an attorney to protect your recovery.

To keep your benefits secure during a job transition, review COBRA rights after termination so you do not miss time-sensitive health coverage elections while the bankruptcy is pending.

Sample Proof-of-Claim Paragraph

“I was employed by Debtor from March 15, 2023 through April 10, 2025. As of the petition date (April 15, 2025), Debtor owed me unpaid wages and accrued vacation earned within the preceding 180 days totaling $14,275. Pursuant to 11 U.S.C. §507(a)(4), I assert priority for $14,275 (below the statutory cap). Additionally, I am owed severance under my written agreement dated January 1, 2024, payable upon termination; $5,000 was earned within the 180-day window and is asserted as priority under §507(a)(4), with the remainder $3,000 as a general unsecured claim. I also assert WARN back pay of $6,000 for the 60-day notice period, less interim earnings, as detailed in the attached worksheet. Supporting pay stubs, W-2s, my offer letter, severance agreement, WARN calculation, and a perjury declaration are attached.”

For more detail on gathering the right documents and finishing Form 410 correctly, consult Bankruptcy basics for employees.

Recovering Severance After Bankruptcy — Rules, Examples and Practical Approaches

Severance is usually a contractual or policy-based payment promised upon termination or layoff. Whether it receives wage-priority treatment depends on when it was “earned” under the agreement and whether that falls within the 180-day window before the filing or business cessation.

Employee-focused resources explain that severance can qualify for wage priority if the entitlement accrued during that window; otherwise it typically becomes a general unsecured claim. See Employer issues in bankruptcy and the employee guide Bankruptcy basics for employees. For benefits counsel perspective on severance in restructurings, see Employee considerations in restructurings.

How Severance Is Treated for Priority

Priority generally covers severance only to the extent it was “earned” in the 180-day look-back, up to the cap. If a plan or contract makes severance payable based on work performed or tenure that accrued largely outside the 180-day period, much of the amount may be unsecured. If the agreement makes severance payable at termination and the termination date falls within the window, part or all might be treated as earned then—courts differ, so attach the agreement and explain your position.

Examples: When Severance Is “Earned”

• Tenure-based severance earned over a year: If severance accrues pro rata over a full year of service and termination occurs after the year, much of that entitlement was earned before the window and will likely be unsecured. Any portion earned within the last 180 days may be priority (subject to the cap).

• Severance payable at termination: If the agreement says severance is due and payable upon termination, and termination occurred within 180 days pre-filing, you can argue the severance was earned at termination and thus falls under wage priority (up to the cap). Expect the trustee to test the contract language, so present a clear calculation and attach the agreement.

Practical Approaches and Negotiation

Preserve the severance agreement and any policy or handbook provisions. Highlight the entitlement and calculation method. On Form 410, label the priority portion and unsecured portion with clear math and dates. In Chapter 11 cases, consider contacting the creditor committee or trustee about potential settlement or administrative claims for post-petition obligations. Coordination with co-workers can strengthen leverage—collective presentation of severance claims often produces more efficient outcomes. For strategy considerations in corporate restructurings, review Employee considerations in restructurings.

For a deeper review of non-bankruptcy severance rights and negotiating tips you can use to support your claim calculations, see our severance agreement review guide.

WARN Act Claims in Bankruptcy — Explanation and Filing Tips

The federal WARN Act generally requires employers with 100+ employees to give 60 days’ advance notice before a mass layoff or plant closing. If the employer fails to give proper notice (and no exception applies), affected employees may be owed up to 60 days’ back pay and the value of benefits. In bankruptcy, WARN claims often track wage-claim treatment, but results can vary based on case law and timing.

WARN Basics and Benefits

WARN remedies include back pay and the cost of benefits for each day of the violation, offset by any interim earnings during that period. Document the date you were told of the layoff or plant closing, any written notices, and your pay/benefits during the 60-day span. For a full primer on coverage, exceptions, and remedies, see our companion resource on WARN Act notice requirements.

WARN Claims Priority and Case Outcomes

Many courts treat WARN back pay like wage claims for priority purposes if earned within the 180-day window and subject to the cap, but outcomes can differ by jurisdiction and case facts. Practitioner commentary in Employer issues in bankruptcy flags these differences and urges careful filing strategy. Employees should file WARN claims with clear math, attach any notice (or explain its absence), and designate the priority and unsecured portions on Form 410.

How to Calculate a WARN Claim

Compute your daily pay (salary/260 workdays or hourly rate x typical hours), multiply by 60, add the value of benefits (employer-paid health premiums and other benefits), then subtract pay you actually earned during those 60 days (mitigation). Example: If your daily pay is $200, your 60-day back pay is $12,000. Add $1,200 in employer-paid health premiums, subtract $2,000 you earned at a new job during those 60 days. Claim = $11,200. Assert priority up to the cap if timing supports it and list the remainder as unsecured.

If your layoff involved discrimination or retaliation issues along with WARN, you can also review our general layoff and rights resources to preserve separate claims while your WARN filing proceeds.

Pension and Retirement Claims — Protections and How to Act

Retirement rights turn on the plan type. Employees need to know which protections apply and what to file if the employer failed to remit contributions or the plan is underfunded. The Department of Labor’s concise resource DOL: Your employer's bankruptcy and the City Bar’s Bankruptcy basics for employees are excellent starting points.

Defined Contribution vs. Defined Benefit Plans

• Defined contribution (e.g., 401(k)): Assets are typically held in trust or custodial accounts separate from the employer’s assets. As a result, they are usually not part of the bankruptcy estate. Your account should remain intact, though delays or administrative issues may occur. If the employer withheld contributions from your paycheck but did not deposit them, you can assert a claim for those unremitted amounts.

• Defined benefit (traditional pension): Many are insured by the Pension Benefit Guaranty Corporation (PBGC). If the plan terminates and is covered, PBGC may step in to pay benefits up to statutory limits. If the plan is not covered or is underfunded, you may have a claim against the employer’s estate for missed contributions or underfunding.

Unpaid Employer Contributions

If the employer failed to make required contributions, document the amounts and timing. Depending on the statute and timing, some unpaid contributions may receive priority (e.g., under §507(a)(5) for certain benefit plan contributions). Attach plan statements, SPD/plan documents, any employer communications, and a simple calculation of what is unpaid. The City Bar guide covers these documentation steps in Bankruptcy basics for employees.

Practical Steps for Pension Claims

• Contact the plan administrator for an account statement and confirmation of plan status.

• File a bankruptcy claim for unpaid employer contributions or benefit-related amounts owed, with clear attachments.

• Notify PBGC for defined benefit plans and monitor plan communications and the docket.

• Review DOL guidance in DOL: Your employer's bankruptcy for employee protections and plan treatment.

If your pension or 401(k) claim becomes complex—especially with PBGC or ERISA issues—consider specialized legal help. Our resource on ERISA lawyers and denied benefits appeals explains how benefits counsel can assist with plan documents, appeals, and court filings.

Practical Checklist and Timeline for Employees

Timing is everything in bankruptcy. Use this checklist to stay organized from day one to the bar date and beyond. Keep a running file with all records and communications.

Immediate Actions (Day 0–7)

• Gather pay stubs, time records, final pay statement, employment contract or offer letter, and any severance agreement.

• Collect WARN notices, layoff emails, or the absence of such notices with dates and names.

• Download pension/401(k) statements and plan documents.

• Locate the bankruptcy Notice, verify the case number, court, and claims agent website.

• Calendar the claims bar date and any interim deadlines. Confirm where and how to file.

• Read employee-oriented summaries in Bankruptcy basics for employees and the DOL’s Your employer's bankruptcy.

Short-Term Actions (By Bar Date)

• Complete Official Form 410 (Proof of Claim) to file proof of claim bankrupt employer. Include wage details and any WARN or severance amounts.

• Attach documentation and your calculation worksheet separating the priority portion and general unsecured remainder.

• Assert priority of unpaid wages bankruptcy clearly with the statutory citations and dollar amounts.

• File via the claims agent portal or with the court clerk per the Notice. Use certified mail or a trackable upload and save receipts.

If You Are a Union Member

• Contact your union representative about coordinated filing, collective WARN actions, and communications with the trustee or debtor.

• Share your records so the union can align calculations across affected co-workers.

Ongoing Monitoring

• Watch for claim objections or motions that affect employee claims; calendar response deadlines.

• If the trustee objects to your claim, speak with counsel and consider a written response with supplemental proof.

• Track plan communications if you have pension/401(k) issues and follow DOL/PBGC updates.

• If severance priority is challenged, be ready to negotiate or present contract language supporting your position.

As you gather records for bankruptcy, our practical wage and benefits resources can help organize evidence, including COBRA rights after termination and the step-by-step how to file a wage claim guide.

When to Get Legal Help for Employee Rights Employer Bankruptcy Issues

Consider hiring a bankruptcy or ERISA/benefits attorney if you have large unpaid amounts, WARN claims across multiple sites, contested severance, underfunded pension issues, or if the trustee objects to your claim. Multi-entity corporate structures and sale processes can also complicate who the proper employer is for your claim.

For low-cost support, check legal aid, local bar associations, unions, and employee advocacy groups. The City Bar handbook lists resources and emphasizes early action in Bankruptcy basics for employees. For restructuring-specific considerations that affect severance, benefits, and plan transitions, see Employee considerations in restructurings. If pensions or health plans are at issue, consult DOL and PBGC materials and consider counsel familiar with pension claims employer bankruptcy.

To understand related workplace rights that often arise during mass layoffs and reorganizations, you can also review our overview of employment law representation options for practical guidance on selecting and working with an attorney.

Conclusion

• Employees have priority for wages earned within 180 days before filing or shutdown, up to a capped amount; amounts outside the window or over the cap are unsecured.

• Severance may be recoverable and can qualify for priority only if it was earned within the window under the agreement; otherwise it is generally unsecured.

• Pension protections depend on whether you have a 401(k) (trust assets) or a defined benefit plan (PBGC coverage and contribution claims).

Act fast: gather records, find the case and bar date, and file proof of claim bankrupt employer with a clear priority breakdown. If you have complex issues (WARN, severance, pensions), consider legal help immediately. Protect your employee rights employer bankruptcy and make sure the priority of unpaid wages bankruptcy is properly asserted.

Need help now? Get a free and instant case evaluation by US Employment Lawyers. See if your case qualifies within 30-seconds at https://usemploymentlawyers.com.

FAQ

What is my priority if my employer files bankruptcy?

Employees have a priority for wages earned within 180 days before the filing or business shutdown, up to a statutory cap per person. Amounts over the cap or earned earlier are general unsecured claims. This priority of unpaid wages bankruptcy framework is summarized in the CRS report on bankruptcy and explained for workers in Bankruptcy basics for employees.

How do I file proof of claim against a bankrupt employer?

Use Official Form 410, attach pay records and contracts, and designate the priority and unsecured portions of your claim. File before the bar date with the claims agent or court clerk listed on the Notice of Bankruptcy. Detailed steps and documentation guidance appear in Bankruptcy basics for employees.

Can I recover severance after bankruptcy?

Yes, but recover severance after bankruptcy depends on contract terms and timing. Severance qualifies for wage priority only if it was earned within the 180-day window; otherwise it’s usually unsecured. Practitioner commentary in Employer issues in bankruptcy and benefits counsel insights in Employee considerations in restructurings discuss treatment and strategy.

What happens to my pension if my employer is bankrupt?

401(k) assets are typically held in trust and are not part of the bankruptcy estate; check for missed employer contributions and file a claim if needed. Defined benefit plans may be insured by PBGC, which can step in with limits. See DOL: Your employer's bankruptcy and the City Bar’s Bankruptcy basics for employees for pension claims employer bankruptcy guidance.

Are WARN claims treated the same in bankruptcy?

Often, WARN claims are treated similarly to wage claims for priority purposes when earned within the 180-day window and subject to the cap, but results can vary by jurisdiction. File with a clear calculation and documentation. See the analysis in Employer issues in bankruptcy and employee filing guidance in Bankruptcy basics for employees.