If Your Boss Goes Bankrupt, Your Unpaid Wages Have Priority

When a company goes under and files for bankruptcy, there’s a long list of people it owes money to — banks, suppliers, landlords, credit card companies. You might assume employees end up at the back of that line. But that’s not how it works.

Federal bankruptcy law sets up a priority system that puts unpaid employee wages ahead of most other debts. That includes hourly wages, salaries, commissions, vacation pay, severance, and sick leave. So if your employer can’t pay everyone, workers generally get paid before many general creditors do.

The technical term is “priority unsecured debt.” It sounds complicated, but the basic idea is simple: your wages are treated as more important than regular unpaid bills the company owes. General unsecured debts — stuff with no special legal protection — get whatever’s left over after priority claims are paid.

There are two important limits to know:

• Wage cap: Federal law caps the priority amount at about $15,150 per employee (this number adjusts periodically). Wages above that cap are treated as general unsecured debt.
• 180-day rule: Only wages earned in the 180 days before the bankruptcy filing qualify for priority status. Older unpaid wages may not be protected.

To actually get paid, you’ll typically need to file what’s called a Proof of Claim with the bankruptcy court. This is how you officially say “hey, this company owes me money.” The official form is available on the U.S. Courts website. If you’re part of a union, your union can also file on your behalf. Be aware that courts set strict deadlines for filing — missing the deadline can mean losing your right to collect, so act quickly.

One honest thing to know: priority status doesn’t guarantee you’ll get everything you’re owed. It depends on how much money the company actually has left. But it does mean you’re near the front of the line, not the back — and that matters.