What Happens to Unpaid Wages When a Business Files for Chapter 7?

Employees at a popular Denver-area bakery, Schmidt’s Bakery and Delicatessen, recently got a rude surprise when tax agents barged in one Tuesday morning and promptly shut down the business.  This drastic step was ordered by the state government in response to the bakery’s failure to deal with back taxes.  Schmidt’s subsequently filed for Chapter 7 liquidation, citing debts in excess of $800,000—a figure that includes $24,000 owed to 40 former employees who apparently never received their final paychecks.

Will this newly unemployed bunch ever see their money?  Employees of a bankrupt business tend to be given priority when the courts order the distribution of available assets—but this happens only if there are assets around to distribute.  If this were a Chapter 11 “restructuring” bankruptcy, then the ex-workers would be in a good position to get their hard-earned money eventually, but these Chapter 7 cases usually end in the dissolution of the business, as the owners lack the funds to keep the gears turning.  Often, former employees have to settle for little or nothing.

If you’re a struggling business owner in the area of Long Island, Chapter 7 bankruptcy can give you a variety of options.  Call our law office today so we can examine some of them.