Q. I am 58 years old and worked for the same textile factory for nearly twenty years. My health care benefits were paid through my employer who has since filed for Bankruptcy. I have called the company but have not been able to reach anyone concerning my COBRA rights. What are my options? I have been diagnosed with Diabetes and cannot afford to lose my medical benefits.
A. The goal of COBRA (Consolidated Omnibus Budget Reconciliation Act) is to provide workers like yourself that have lost their health benefits by reason of retirement or termination of employment with a continuation of their health benefits for a specific period of time. However, when employer bankruptcy is the cause of separation, the normal channels for collecting your COBRA benefits are changed.
Types Of Employer Bankruptcy – Effect On Recovering COBRA Benefits
If your employer declared bankruptcy, it would generally take one of two forms:Reorganization under Chapter 11 of the Bankruptcy Code.
- Liquidation under Chapter 7 of the Bankruptcy Code
- Reorganization Under Chapter 11
Reorganization Under Chapter 11
The “Chapter 11” reorganization usually means that your former employer continues to stay in business under the court’s protection and supervision while the company attempts to reorganize its financial affairs and contractual obligations. A Chapter 11 bankruptcy may or may not affect your health plan. In some cases, plans continue to exist throughout the reorganization process. In other cases plans are terminated.
If continued, the plan will operate according to the plan document and all COBRA obligations remain intact. However, if the company decides to terminate the group health plan and no other plan exists, all coverage and all COBRA obligations cease. Under these circumstances, your employer is required to give you 60 days notification before your coverage ends. During that time, you should receive a “certificate of creditable coverage,” which you will need in order to apply for a new policy.
Liquidation Under Chapter 7
The Chapter 7 bankruptcy will usually mean your former employer liquidates its assets to pay its creditors and ceases to exist. Under these circumstances it is likely that your health benefits will be terminated as well as any pensions you had with your company.
What You Should Do Before Bankruptcy Proceedings End
Having learned your company has filed for bankruptcy, but prior to final discharge, you will want to make contact with the administrator of the plan. If this person is no longer available, you should attempt to contact the attorney who represents your employer in the bankruptcy case. If other monies are owed to you by the employer, the sooner you make your claim as a creditor, the faster you get on the list of potential receivers. Notwithstanding, it is the bankruptcy trustee that will be negotiating and adjudicating these types of issues. Another possibility is that if you belong to a union, you should contact your representative and request a status on the benefits owed to you.
If you do get in communication with the administrator, the employer’s attorney or your union representative, make sure you are prepared and ask the following questions.
Questions To Ask
- Will the plan continue or will it be terminated?
- Who will be acting as the plan administrator of the plan during and after the bankruptcy?
- Will there be a trustee managing the plan and what is the contact information for this person?
- If the benefits plan is to be terminated, how will accrued benefits be calculated and paid?
- If the health plan is to be terminated, how will outstanding health claims be paid?
It is strongly advised that before making contact with the administrator, trustee or union representative you acquaint yourself with the provisions of the plan. You will want to know how your health benefits are to be treated when the plan is terminated. You should also have received a written copy of the plan when the company first hired you.
The plan will also contain a summary description on how your health plan would be managed and under what contingencies the plan may be effected.
Finally you will want to gather as much information as possible to substantiate the length of your employment, compensation, and contributions to the health plan. Your individual benefit statements should provide you with much of this information.
For more information on COBRA and Employer Bankruptcy, visit the US Department Of Labor Website.
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