This article examines whether severance benefits promised to employees pre-petition may be paid after the employer has filed a chapter 11 bankruptcy petition. The answer depends on whether the severance benefits were payable based on length of service or in a single lump-sum payment, and whether the debtor is in a majority-or-minority-rule jurisdiction. For most debtors, pre-petition lump-sum severance benefits are not payable as an administrative expense. Severance benefits based on length of service must be allocated between pre- and post-petition service. This article does not deal with benefits provided under a collective bargaining agreement, which are governed under Section 1113 of the Bankruptcy Code and may be modified only with court approval.


Originally published in American Bankruptcy Institute Journal, Vol. 22, No. 2, pp. 1, 44-45, March 2003.

Reprinted with permission from the ABI Journal.


severance benefits, bankruptcy


Bankruptcy Law | Labor and Employment Law


American Bankruptcy Institute

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American Bankruptcy Institute.

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