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Maverick
Maverick, Attorney
Category: Bankruptcy Law
Satisfied Customers: 5767
Experience:  20 years of professional experience
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is there a limit on the $ amount of severance I can receive

Resolved Question:

is there a limit on the $ amount of severance I can receive from my former company that has filed for chapter 11 bankruptcy
Submitted: 7 years ago.
Category: Bankruptcy Law
Expert:  Maverick replied 7 years ago.

Yes, it depends on the assets of the company and the priority of the severance claim when compared to competiting creditor claims. Normally the severeance claim is treated as an unsecured claim and may only get paid pennies on the dollar. However, if a portion of it is treated as an administrative claim, that portion may get paid 100 cents on the dollar as per the severance agreement.

In a Chapter 11 proceeding, a pre-petition severance agreement can be deemed to be executory or non-executory. The consequence of which definition applies is the claim priority to which the former employee may be entitled. This may mean a former employee receives either 100 cent dollars or less than 100 cents on the dollar on

account of payments due under the severance agreement.

Obviously, a debtor company will usually seek a way to minimize payments to former employees, whereas, former employees would rather be paid in full. Section 365 of the

Bankruptcy Code provides that a trustee may assume or reject any executory contract.

The rejection of an executory contract enables the employee to file an unsecured claim which is deemed to arise as of the date the bankruptcy petition was filed.

However, until the court enters an order rejecting the contract, the employee to the severance contract may be entitled to an administrative claim based upon the actual and necessary benefit provided to the bankruptcy estate. Thus, an employee whose executory severance contract is rejected, but who can demonstrate actual and necessary benefit to the estate, will have a bifurcated claim consisting of an administrative portion for post-petition services through the rejection date (likely to be

paid in full) and an unsecured portion for the rejection damages (unlikely to be paid in full).

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Customer: replied 7 years ago.
that is not the answer i was looking for - I need to know the dollar $ of severance I can receive under the bankruptcy law - I believe its somewhere between $4500 and $10000
Expert:  Maverick replied 7 years ago.
Where are you getting those amounts from? What does your severance contract say? To my knowledge there is no fixed limit on the amount of severance that can be paid in a chapter 11 filing.
Customer: replied 7 years ago.
i had a severance agreement with my former company to receive 12 week of severance, they filed bankruptcy the next week - i was notified that my severance would be limited to a certain $ amount because of bankruptcy law
Expert:  Maverick replied 7 years ago.

If they paid you any money before they filed, then what you are talking about is the power of the trustee to avoid what they call a preference payment or a payment made to a "creditor" (which you are considered to be once the company files for BK ) within close proximity to the filing of the BK.

 

The new BK law establishes a floor for preference actions in nonconsumer cases. The trustee cannot avoid a transfer if the aggregate amount sought to be avoided is not greater than $5,000. This is for payments made by the company in chapter 11 that were made in its ordinary course of business and in accordance with industry standards. So if the company paid you any money on the severance the trustee cannot take it back from you so long as it was less than 5k.

 

If they have not paid you any money yet, you are going to be in the executory contract situation I described above and if you are no longer working there, it is most probably going to be treated as a rejected unsecured claim for which you may not get 100% of the amount that they promised to pay under the severance agreement.

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