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Staff Unpaid as Prison Health Services Contractor Declares Bankruptcy

What happens if your employer declares bankruptcy? A determination would be made as to whether or not you were “necessary” to the business operations. If you are not, you would likely be laid off. If the employer files for Chapter 7, then the company would be dissolved. In both cases, it creates a problem for employees.

Creditors are not allowed to be placed above one another when it comes to repayment. This includes employees, who now become the equivalent of creditors to their employers. While their bankruptcy petition is being processed, the company cannot repay any of its creditors, and the creditors are not allowed to take adverse action against the debtor. This leaves the employees working without pay.

At this point, the medical services provider is working with a skeleton crew that has not been paid for two consecutive pay periods. Meanwhile, the company can no longer fulfill the terms of its contract, meaning that any lawsuits filed against them could not be quashed due to sovereign immunity. 

How Did This Happen?

Weirdly, this was not the government’s fault. It was the sole fault of the medical services provider whose owner had his license suspended amid numerous complaints of deficient medical services. Now, you can accuse the government of failing to properly vet the doctor and his company prior to hiring them, but the suspension of the doctor’s medical license was the catalyst for this bankruptcy. 

Meanwhile, the nurses continue to be obligated to show up for work despite the fact that they are not being paid. However, the company has reduced services to the 200 inmates at the facility. At this point, local officials are considering withholding payment to the company to pay the nurses who continue to show up without payment. With the risk of multiple lawsuits very high from interested parties, local officials seem poised to force the company to pay its nurses by withholding payment. However, because the company is currently in bankruptcy, the trustee will have ultimate authority over how those funds are spent. The trustee is not beholden to local officials and their nurses. So, the decision is no longer in the hands of authorities who hope to pay the nurses. 

In fact, the bankruptcy would likely have to be resolved before the nurses were paid, and then, they may be paid on a prorated rate. As part of the bankruptcy settlement, they may only be paid a fraction of what they are owed. The funds that the government would pay the health care company are considered part of the bankruptcy estate, and the trustee would want that money to repay creditors. So, local officials may be providing false hope to these nurses.

Talk to an Indiana Bankruptcy Attorney Today

Employer-induced personal bankruptcies are quite common. Call Indiana bankruptcy attorney Chris Arrington today to schedule a free consultation, and we can begin discussing your next moves immediately. 


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