Pursuant to Section 503(b)(1)(A) of the Bankruptcy Code, "wages, salaries, and commissions for services rendered after the commencement of the case" are treated as administrative expense claims. Additionally, Section 507(a)(4) of the Bankruptcy Code grants priority status to "wages, salaries, or commissions, including vacation, severance, and sick leave" earned within 180 days of the bankruptcy case. While both sections aim to protect employees' compensation in the event of an employer's bankruptcy, they apply to different time periods and have different priority levels, thus affecting severance payments differently.
This article will discuss different scenarios in which bankruptcy can affect a severance payment.
Troutman Pepper's Creditor’s Rights Toolkit is a series that provides practical insights to help creditors confront the challenges of commercial bankruptcy.
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