In a weakening economy, thousands of businesses are shutting down shop and laying off employees.
A company's impending bankruptcy can have devastating consequences for fearful employees, says Lisa Lane Brown, author of "The Courage to Win: A Revolutionary Mental Toughness Formula."
"If you let fear turn into panic, you are vulnerable to making poor decisions about your career and money," says Brown, a career coach who has counseled employees battling bad times due to an employer's failure.
By contrast, workers who take charge of the fear and use it to motivate positive change "will thrive, even in stressful financial times," Brown says.
Following are some steps you can take to protect yourself financially when your company might be headed for bankruptcy.
Take these steps to protect yourself financially when your company might be headed for bankruptcy.
1. Tidy up your own financial house Business bankruptcy filings totaled 33,822 for the 12 months ending in June 2008. That was a 41.6 percent increase from the 23,889 bankruptcies for the 12 months ending in June 2007, according to the Administrative Office of the U.S. Courts.
A short list of failed companies includes Mervyn's, Circuit City, Linens 'n Things, Sharper Image, Bennigan's and Aloha Airlines. Even automaker giant General Motors is teetering.
If your company appears headed for trouble, it's time to get your finances in order before the company declares bankruptcy.
This means crafting an investment mix appropriate for challenging economic circumstances. Brown suggests creating and reviewing a personal financial statement with an accountant or investment adviser.
"Your decisions in this area are completely unique to you and should reflect your risk level," she says.
However, Brown suggests some general rules of thumb, such as having 10 percent to 20 percent of your money available in cash; 30 percent to 40 percent in longer-term, secure investments such as Treasury bills and bonds; and 40 percent to 50 percent in real estate or equity mutual funds.
John Baker, author of "READY Thinking -- Primed for Change," says it may also be prudent to cut back on expenses.
"Defer major purchases and delay expensive outlays," says Baker, who has worked as a former chief operating officer for Ameriprise Financial and a vice president at American Express.
At a minimum, it's wise to avoid using credit, he says. Instead, set up a six-month reserve of emergency cash. If your budget has become bloated, find ways to trim it.
"Belt-tightening is never a sexy prospect, but going on a budget can give you a sense of personal control during chaotic times," he says.
2. Tie up loose ends with your company If your company decides to declare bankruptcy, you could be among the last to know.
If your workplace has 100 or more employees, the Worker Adjustment and Retraining Notification Act requires employer notification of a mass layoff 60 calendar days in advance.
However, if you work at a small business, you might not discover your employer's fate until the last minute -- by e-mail, a phone call or padlocked front doors.
Once the bankruptcy is announced, you're likely to have more questions than answers. For starters, will you receive a final paycheck?
Employees have a priority claim for up to $10,000 in wages, according to bankruptcy law. This means that employees' claims are among the first to be addressed in court, and, it is hoped, among the first to be paid.
But there's a catch or two.
"Only wage claims earned within 180 days before the bankruptcy filing are entitled to priority," says Fred Corbit, a consumer lawyer working for the Northwest Justice Project, a public interest law firm.
Prior to joining NJP in 2007, Corbit was a partner in a private law firm and represented trustees, debtors and creditors in bankruptcy proceedings nationwide.
Corbit says you'll only get your wages if the company still has cash -- or credit -- to pay you.