Business Responsibilities to Employees During Chapter 11 Bankruptcy
Chapter 11 bankruptcy filings are becoming more and more common among businesses in South Florida, and data reported by the American Bankruptcy Institute (ABI) indicates that commercial Chapter 11 filings rose by 3 percent during 2025, while commercial filings in general rose by about 13 percent. If your business is currently considering Chapter 11 bankruptcy, you likely know that this is a type of reorganization bankruptcy that will not require any assets of your business to be liquidated. Instead, during a Chapter 11 case, the business debtor creates a repayment plan that is confirmed by the court and that typically lasts anywhere from six months to several years. During the terms of the plan, the business remains open while making payments that go toward debts owed.
While there are many complexities in a Chapter 11 bankruptcy case that necessitate working with an experienced South Florida bankruptcy lawyer, an important one to consider is the issue of employees. If your business has employees, what responsibilities do you owe to them during the course of your business’s Chapter 11 case?
Employees Become Creditors Who Are Owed by the Business
If your business owes back pay to any employees — whether those employees remain current and help to keep the business running during the Chapter 11 case or have already parted ways with your business — those employees who are owed wages or benefits become creditors of the business.
Since the automatic stay will immediately apply to your case once your business files for bankruptcy, employees will not be able to continue or to take new action to collect on wages owed. Your business may be able to obtain court-approval to pay for pre-petition wages and benefits that your employees are owed. At the same time, there is a cap on the amount of wages owed that can be treated as a priority debt under the Bankruptcy Code, with the remaining becoming a nonpriority unsecured debt. What your employees can expect to receive, and what you will be obligated to pay, will depend in part on how much they are owed and whether the amount exceeds the cap.
Paying Employees During the Bankruptcy Case
Any employees that you continue to employee during the bankruptcy case will need to be paid wages. Employee wages are typically treated as administrative expenses that can be paid during the course of the bankruptcy.
However, if employees are owed additional payment after complying with terms for incentives or promised bonuses, your business will likely need to obtain approval from the court to pay these amounts.
Contact Our West Palm Beach Bankruptcy Attorney Today for Assistance with Your Business’s Chapter 11 Case
Is your South Florida business considering Chapter 11 bankruptcy? Any business with employees that is considering a Chapter 11 bankruptcy filing should seek advice about all aspects of the bankruptcy process from an attorney who regularly handles business bankruptcies, including any issues pertaining to employee pay during the bankruptcy process. One of the experienced West Palm Beach bankruptcy lawyers at Kelley Kaplan Delaney & Eller, PLLC can begin working with your business on its Chapter 11 filing today, and we can answer any questions you have about how the process will work. Contact our firm for more information.
Sources:
law.cornell.edu/uscode/text/11
abi.org/newsroom/bankruptcy-statistics
