Employer is in Chapter 11

[Guest Taxaholic]

Employer has declared chapter 11. As the TPA we are no longer getting paid, and should be a class 6 creditor, so probably nothing will ever be paid.

However, due to the drop in work force, we have 14 individuals that have been sent enrollment forms prior to us knowing of the bankruptcy. Two people, thus far, have returned them expecting to be eligible for benefits.

Our company has not been administering COBRA for exceptionally long and this is our first bankruptcy. My understanding is that once they file, all plans cease to exist. No one is eligible for COBRA. I'm wondering two things.

1) Do the COBRA bankruptcy rules apply to all bankruptcies, 7, 11, 13 etc... Just seems like if it is 11, and they are going to reorganize wouldn't the plan stay in place unless the employer dropped them.

2) If the plans are dropped, shouldn't these employees receive a notice that there are no benefits? I think we could be seen as responsible for this and don't mind getting a letter together and the cost even though we won't be paid.

Any thoughts?