What Happens to Your Health Insurance Coverage When Your Company Goes Bankupt?

The WSJ in "For Workers, Medical Bills Add to Pain as Firms Fail" (Dec. 6) contains heartbreaking stories of employees who lost their health insurance and were liable for thousand of dollars in medical expenses when their firms were shutdown or entered bankruptcy. The Department of Labor, Fact Sheet: Your Employer's Bankruptcy - How Will It Affect Your Employee Benefits?, has some questions you should ask your employer in the event of bankruptcy.

• Will the plan continue or will it be terminated?
• Who will be acting as plan administrator of the plans during and after the bankruptcy, and who will be the trustee in charge of the pension plan?
• If the pension plan is to be terminated, how will accrued benefits be paid?
• Will COBRA continuation coverage be offered to terminated employees?
• If the health plan is to be terminated, how will outstanding health claims be paid, and when will certificates of creditable coverage (showing, among other things, the dates of enrollment in your employer’s health plan) be issued?

In a Chapter 11 reorganization the bankruptcy may or may not affect your pension and your health care plan. With a Chapter 7 bankruptcy the firm ceases to exist and the health plan is terminated, which means that you are probably not eligible for a COBRA extension on your coverage.