what comes to yourmind after receiving chapter 11 bankruptcy notice from your employer?

Chapter 11 bankruptcy filing is the most recent discussion in one of Wall Street Journal’s longest running investment disaster stories. Some of the notable names in corporate America are at the risk of going the Sears and Radio Shark’ s way. We’re amidst a pandemic, Corona-virus, which has seen an accelerating demise of most businesses. Despite how large or successful a business is,the worst can happen. Filing for Chapter 11 bankruptcy can strike terror in the hearts of employees.

While it’s serious and can be severe, it doesn’t necessarily spell doom. Unlike Chapter 7 bankruptcy, Chapter 11 isn’t a death sentence.  For mentions, General Motors filed for Chapter 11 bankruptcy in 2009’s economic recession. However, it regained its footing and currently stands as America’s largest Automaker. Filing for Chapter 11 bankruptcy allows for negotiations between the company and its creditors to restructure debt terms. But what exactly does this mean for employees? I’ll take you through the implications Chapter 11 can have on you as an employee. 

Health Insurance and Chapter 11 Bankruptcy

In most scenarios, Chapter 11 bankruptcy has no immediate effect on group health plans. The plan continues throughout the reorganization. All thanks to COBRA ( the Consolidated Omnibus Budget Reconciliation Act. One thing is clear: Bankruptcy on its own doesn’t release employers off their COBRA obligations. Your employer has to determine whether the group plan remains in force. If you lose your job as a result of bankruptcy, it’s important that you follow up for a conversion option

In some states, you can maintain a group health insurance coverage for a period up to eighteen (18)  months. Others will extend it to thirty six (36) months. Be sure to confirm with your state’s health departments.Depending on your state, you’ll need to obtain new health insurance coverage. It can be through a new employer, joining your spouse’s plan, or purchasing a new individual plan. For the latter, you’ll be required to pay for your portion of the premium payment and your employer’s, plus a 2% fee. 

Sometimes, despite best intentions, employers in bankruptcy make tough decisions. In the event that your employer drops health insurance benefits, you’ll lose your health coverage. The group plan ceases to exist, hence triggering COBRA to send a termination notice. Your employer should give you a 60 day notification before the end of your coverage, according to the U.S Department of Labor. You should receive a “certificate of creditable coverage,” which you’ll use to apply for a new policy. 

If you have disability coverage, but lose it due to bankruptcy, the company cancels its group plans. However, your employer will hold negotiations with your insurance administrator to see whether  you can transfer from a group policy to an individual pan. Same applies if you have life coverage through work. 

Can You Lose Your Retirement Plan in a Chapter 11 Bankruptcy?

Years ago, a decision to have retirees depend on their retirement savings was made by the United State Congress. These savings are to see them through their golden years, independent of any debt obligations. Consequently, most retirement accounts without regard to value, such as 401k, have been excluded from bankruptcies. It’s equally important to note that each state and bankruptcy code has its own sets of exemptions. The guideline below will help you determine the type of retirement assets/ plans that’re likely to be exempt from creditors:

ERISA- Qualified Retirement Plans

Your employer establishes ERISA ( Employment Retirement Income Security Act). You don’t have to worry about an ERISA-qualified account in bankruptcy as it is tax exempt. To act with care and prudence, ERISA requires fiduciaries to run plans solely. It’s to be done exclusively in the interest of its beneficiaries and participants, to provide for benefits and paying plan expenses. 

The United States’ Secretary of Labor retaliates the rationale, “ ERISA-qualified plans are not vehicles for furthering social goals.” It simply means, a bankruptcy trustee appointed to your case cannot take your plan since it’s not a property. Examples include, 401 (k)s, 403 (b)alias profit sharing plans, and 457(b) deferred compensation plans. 

Non-ERISA Qualified Plans

If you have a non-ERISA  retirement account, you’re most likely aware that it’s protected by the Federal bankruptcy law. Such plans include; IRA’s, SIMPLE IRA’s (self employed), SEP-IRA’s (small business owners), and ROTH IRA’s. 

IRA’s and Roth IRA’s have a protection ceiling at $1,362,800. This applies to all cases filed between April 1, 2019, and March 31,2022. The trustee takes any amount over the protection ceiling amount to repay creditors. Adjustments for the cap are adjusted every three years for inflation. Therefore, the next adjustment will be on April 1, 2022.  Be on the lookout.

Unprotected Retirement Accounts

Upon filing for bankruptcy, note that there are accounts that are generally unsafe from your creditors. 

  • The federal exemption no longer protects any monies that you withdraw from your retirement plan.
  • In case of a valid lien tax against you, the IRS may reach your assets.
  • In the event that you undergo a divorcce, your spouse may reach your retirement accounts. 

Can My Employer’s Chapter 11 Bankruptcy Affect My Corporate Credit Card?

Read through the requirements before signing the express credit card by your employer

As an employee, the most likely card you have is the expense card from your employer. Often, if you need to travel occasionally, order supplies on behalf of the company. Chances are, you’re more than just an authorized user. For the issuer and the employer’s security, most credit companies require a consignment on the account.  

However , there are good chances that you’re not personally liable, if and only if, your expenses are directly paid by the company. In the scenario, you’re not required to pay the bill or seek reimbursement yourself. Contrary to this, you’ll be held liable as credit card lenders daily scour bankruptcy filings by social security number. To ascertain this, you should consult with your employer.

Wrapping Up

While your employer may declare Chapter 11 bankruptcy, there’s little doubt that it’ll disrupt your life. Not only will you have to look for a new job, but also have concerns over your investments and fringe benefits. As much as there are certain protections in various sectors like retirement plans, be ready to negotiate with your employer. This will help you clear doubts especially on your corporate credit card. 

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