Bankruptcy Bill Doubles Priority Wage Claims to $20,000 and Cracks Down Hard on Executive Bonuses

When a big company goes bankrupt, the headlines usually focus on billion-dollar debt and stock market drama. But for the average employee, it’s a crisis that hits the kitchen table: will I get my last paycheck? Is my retirement safe? The Protecting Employees and Retireees in Business Bankruptcies Act of 2025 is trying to rebalance the scales, making sure workers and retirees get paid before the executives walk away with golden parachutes.

This bill fundamentally rewrites the rules for Chapter 11 corporate reorganizations. It significantly boosts the financial priority of workers, makes it much harder for companies to unilaterally ditch union contracts or cut retiree benefits, and imposes tough new restrictions on executive compensation both during and after the bankruptcy process. Think of this as an attempt to fix the system where the people who caused the mess often walk away unscathed while the people who built the company are left holding the bag.

The Check is in the Mail (Higher Priority Now)

If you’ve ever been owed back wages when a company collapsed, you know the pain of waiting in line behind banks and big creditors. This bill moves you way up the queue. Under Section 101, the maximum amount of unpaid wages that gets priority status in bankruptcy is doubled from $10,000 to $20,000. This means if your employer owes you up to twenty grand in back pay, commissions, or accrued vacation, that money has to be paid out before most other debts.

This change also extends to severance pay. Section 103 now treats severance owed to laid-off employees as a priority claim, fully earned the moment you’re terminated. If you’re a mid-level manager or a trade worker, this change is huge. It offers a much stronger financial safety net if your company suddenly shutters.

Another major win for the rank-and-file is found in Section 102, which addresses 401(k) losses. If your company’s stock was held in your defined contribution plan (like a 401(k)) and you lost money because the company or plan administrator committed fraud, you can now file a claim against the bankrupt estate to recover those losses. Crucially, this protection applies only to regular employees—not executives, insiders, or the top 20 highest-paid non-executives. This is a direct response to situations where executives knew the stock was tanking but employees were still forced to hold it in their retirement accounts.

Making Management Earn Their Cuts

For years, companies used bankruptcy court as a quick way to tear up union contracts (Collective Bargaining Agreements, or CBAs) and cut retiree benefits. This bill slams the door on that practice.

Under Section 201, a company can no longer unilaterally reject a CBA without first engaging in extensive, good-faith negotiations with the union. The company must prove to the court, using “clear and convincing evidence,” that the proposed cuts are the absolute minimum necessary for the company’s long-term survival. The court must also ensure the proposed cuts aren't disproportionately harsh on union workers compared to everyone else. If the company gave bonuses to executives in the six months before filing, the court will automatically assume the company failed to negotiate fairly.

Similarly, Section 202 creates an equally high bar for cutting retiree insurance and health benefits. The company must negotiate, share all relevant financial data, and show that the cuts are part of a broader cost-saving plan that includes management. If the court finds that the company gave bonuses to insiders or highly compensated employees within 180 days of filing, the court will presume the cuts to retiree benefits are unfair.

The Golden Parachute Gets Clipped

Perhaps the most dramatic shift is in Title III, which targets executive compensation. It’s designed to prevent the optics—and the reality—of executives getting rich while employees lose their jobs and pensions.

Section 301 restricts what executives and the top 20 highest-paid employees can receive when the company exits bankruptcy. Any bonuses or perks must be part of a compensation program generally available to all full-time employees, and the pay must be deemed “reasonable” compared to similar jobs in the industry. More importantly, the court must check that the pay isn't “excessive or disproportionate” compared to the economic losses suffered by the non-management employees.

Even more teeth are added with the new Section 305, which introduces a major clawback provision. If a company successfully gets permission to cut union contracts or retiree benefits, the court must calculate the exact percentage drop in those employee obligations. The bankruptcy estate then gets a claim to recover that exact same percentage of compensation paid to officers and board members in the year before filing. If the company cuts your pension, the executives have to give back a proportional amount of their salary and bonuses.

If you’re a secured creditor or shareholder, this bill is bad news. By elevating employee claims and making them priority costs, there is less money left over for you. For executives and consultants, the days of guaranteed bonuses during corporate distress are over, replaced by strict scrutiny and the risk of having to pay money back if regular workers are forced to take a hit.