“Do I have any chance of collecting severance if my employer goes bankrupt after I’ve been laid off?”

Question: After 34 years with the same company, I was notified on Wednesday that I was being let go due to a “reorganization.”

I was issued the standard severance benefits package to sign and sent on my way. I was told I have 45 days to sign.

To make a long story short, I then read press reports that my company will be seeking bankruptcy protection.

Does it make any sense for me to sign the papers? Looks like they had no intention of paying, anyway. Thanks.

Toms River, New Jersey

Answer: TJ, I’m sorry to hear what happened to you. Here’s the best I can do to give you the answers you seek.

(aFirst, whether it makes sense to sign the severance agreement depends on what the severance agreement says. As for one hypothetical example, if your severance agreement offers you Ten Dollars in severance, but includes a provision that says you cannot work in your industry for two years, you definitely should not sign it. On the other hand, if it offers you One Million Dollars, and there is no downside, why not sign it?

Bankruptcy law is a legal specialty, and one I don’t practice in. However, contracts and contractual offers made by a company that seeks bankruptcy protection are generally “voidable” at the choice of the bankrupt company. If it is a contract it sees as good for its future, it can accept it; if it is against its interests, it can reject it, using its business judgment. This is all subject to the review of a Trustee appointed by the Bankruptcy Judge, and then again by the Bankruptcy Judge himself or herself. But you are the first “decision-maker” here: you need to decide if the severance agreement might be good for you, or bad. “The ball is in your court.”

(bSecond, while you will probably lose most, if not all, of what you have been offered, you might be pleasantly surprised by the Bankruptcy Court, for several different reasons: First, when your employer’s Bankruptcy Trustee (i) tallies up the debts, and (ii) collects all of the assets, it just might come about that the creditors, like yourself, may get 50 cents or even 75 cents on the dollar. Second, some competitor may swoop in and offer to pay a lot of money for the company, and in this way pay off most of the company’s debtors, such as yourself. Things surely seem dark; but that’s no reason to presume the worst.

(cThird, it is possible that the Severance Monies were placed into a separate, “ERISA Plan” account, which would make them likely available to you. Sometimes, severance payments that are due employees are kept separate, under the administration of a Plan Administrator and Trustee who are required to keep the monies separate and apart from the monies of the company. Should this be the case in your situation, all of your severance monies may be available to you. Contact the Plan Administrator, whose contact information should probably be available from Human Resources, and ask if this is an “ERISA-based” plan, and if the monies have been safeguarded in this way.

It would probably be wise to consult with a bankruptcy attorney; your local bar association referral service can probably give you a few names as a starter.

We offer a 94-Point Master Severance Negotiation Checklist to make sure you don’t miss any severance-related issues or fail to spot problems in severance agreements. Sure helps to reduce anxiety! To obtain a copy, just [click here.] Delivered by Email – Instantly!

Losing your job after 34 years is bad enough. But then losing your severance; that would be doubly bad. I hope that you don’t lose your severance. But most of all, I hope you don’t lose hope. That’s something no one can take from you, if you don’t let them.

          Best, Al Sklover

Alan Sklover’s Timeless Classic, Newly Updated and Revised

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What Your Employer Does NOT Want You to Know
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© 2010 Alan L. Sklover, All Rights Reserved.

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