Earning your wages is a basic right in the state of Colorado, so denying you your just compensation can land an employer in trouble with state and federal law. You might wonder if an employer that declares bankruptcy can get out of paying you your back wages. If you are concerned your employer is nearing financial insolvency, you should know that state law addresses how a bankrupt company should treat unpaid workers.

The Colorado Department of Labor and Employment (CDLE) explains that in the event a business files bankruptcy, the assets of the business are usually frozen. This action stops the business from paying money it owes to creditors, including workers. The assets of the business are placed in the hands of a receiver or trustee, who will manage the payment of assets to creditors, including workers who are still owed back wages.

When a company goes bankrupt, its debts are organized according to priority. Creditors that are considered priority creditors will be paid first. Some debts will not be paid and will instead be discharged. However, Colorado law protects workers from having their wages voided by bankruptcy. According to state law, an employee, a laborer or a servant of a business is considered a preferred creditor.

Unpaid workers, as preferred creditors, are entitled to receive money from the remaining assets of the business before other creditors. However, depending on the circumstances of the bankruptcy, there may be other creditors who take first priority, and the business may not have enough assets to pay off the remaining wages. If this happens, state law mandates that unpaid workers should receive money from the sale of property the business owns.

If your employer goes bankrupt, the CDLE describes how to enforce your claim for back wages. You would present a statement, made under oath, that describes your employment and unpaid wages. This statement should be provided to a bankruptcy trustee within twenty days of the trustee taking control of the property of the business. The statement should describe:

  • The amount you are owed
  • The work you performed for the wages
  • When you performed the work

An employer going broke can put the lives of its workers in turmoil. They have not only lost their jobs, but the fate of their last paycheck is uncertain. Bankruptcy should never be used to willingly deprive workers of their wages, and state law makes it clear workers can stake a claim to a share of a bankrupt company’s assets to receive their unpaid compensation.

This article is written as general information and is not to be interpreted as legal advice.