When an employee files for bankruptcy, he’s supposed to list any claim he has against an employer as an asset—for example, a lawsuit that requests monetary damages.
But what happens if the employer files for bankruptcy? Does the employer have to list any claim against it as a liability? And does the employee have to list himself as a debtor or risk having his claim wiped out in the bankruptcy?
Recent case: Carlos Sanchez claimed his employer, Northwest Airlines, withdrew a promotion offer because it assumed he was disabled. The offer was nixed toward the end of the company’s own bankruptcy case, which was initiated in 2005.
Northwest gave Sanchez notice that he had to file any administrative claims by a certain deadline. Sanchez didn’t think he had any. Northwest emerged from bankruptcy in 2007.
It demanded that Sanchez’s lawsuit be dismissed as having been discharged in the bankruptcy, since he never filed a claim. But his attorneys argued that, like wages incurred during a bankruptcy proceeding (which must be paid and can’t be discharged) his claim was not dischargeable.
The 8th Circuit Court of Appeals agreed. It said the promotion reversal was akin to other ordinary business bills incurred during a bankruptcy to keep the business operational, such as utility bills and wages. That meant the claim survived the bankruptcy intact. (Sanchez v. Northwest Airlines, No. 10-2393, 8th Cir., 2011)
Final note: The court reasoned that because the case was based on a promotion, it was related to the operations of the company and wasn’t an ordinary debt. Plus, the claim arose close to the end of the bankruptcy case, giving Sanchez very little opportunity to file a bankruptcy claim. Under different facts, the result may have favored the employer.