While federal law protects most of your retirement assets, it is possible for some money to stay in your bankrupt employer's pocket rather than your retirement plan.
For example, deposits to a 401(k) account could be in jeopardy if the business took contributions out of your paycheck but failed to deposit them in your 401(k) account with the retirement plan custodian.
Missing contributions will be another "priority claim" in bankruptcy court, but you'll have to wait -- and possibly fight -- for your money.
With this in mind, check your retirement accounts before the ship sinks. Deposits shown on statements from your 401(k) custodian should match your 401(k) contributions withheld from your paycheck by your employer, Newcomb says.
If you're laid off, roll over retirement funds to an individual retirement account, a new employer's plan or some other option as soon as possible.
"Cashing out your 401(k) plan to ensure you have cash on hand is imprudent and irresponsible," Baker says. "Despite any setback you're facing today, you'll still want to retire sometime."
If your retirement account was based heavily in company stock, and your account is worth less than the amount you and your employer contributed, you may be able to deduct the loss from your taxes under some circumstances.
4. Decide whether to stay on In some cases, your job may not disappear just because the company declares bankruptcy. Chapter 11 bankruptcy allows businesses to continue operations while they reorganize.
For example, Delta Air Lines filed for Chapter 11 bankruptcy Sept. 14, 2005. However, the company emerged from bankruptcy April 30, 2007, and relisted on New York Stock Exchange by May 3 of that year.
If your company is restructuring and intends to stay afloat, you may decide to take a chance and stay on. If so, remember that you'll need to be flexible.
"Re-package and re-invent your services to be in sync with what your employer needs," Brown says.
Beth Johnson, senior vice president for human resources at Delta, urges employees to think about the changes a company intends to make to stay competitive, and to decide whether or not they fit into this vision of the future.
Also try to understand where you stand in the company -- a top performer in a critical function is less likely to receive an immediate pink slip.
"Increasing your value to the company is even more important at this time," Johnson says.
"There will be opportunities to make a positive impact by staying focused on making the company successful."
If you choose to stay with a company that declares Chapter 11 bankruptcy, remember that the company may not be stable for some time. While the law states that companies in Chapter 11 are supposed to file a plan of reorganization as soon as practicable, "a complicated reorganization could take several years," Corbit says.
If your company decides to file Chapter 7 bankruptcy, it is unlikely that you will keep your job for long. A Chapter 7 filing means the company is not planning on staying open for business or restructuring. Instead, it will liquidate all assets.
5. Grieve -- then, start again An employer's bankruptcy can be a wild ride -- you're not sure where you're going, or if there's even a sober driver manning the wheel.
Such feelings are normal.
Employees need to grieve when hearing the bad news, says John duHadway, former chief financial officer at Ownit Mortgage Solutions, which declared bankruptcy in 2006 and laid off 800 employees.
For duHadway, bankruptcy was like mourning the death of a loved one.
"Before you could move on you had to go through, in essence, a grieving cycle," he says. "You loved your company and your employees and you devoted a substantial portion of your life to it and them."
He says he struggled with depression, overeating, seclusion, anger, helplessness and "at times, a feeling of hopelessness."
Grieving is natural and normal. But Brown urges workers to beware of falling into a vortex of "learned helplessness" that causes you to feel like a passive victim.
"Work daily on reversing any learned helplessness you may be feeling," Brown says.
Start with the basics, such as applying for unemployment, hitting online career boards and tapping your network of professional contacts.
Once you've taken care of the basics, find ways to make this unexpected and unwelcome change work for you.
"Take control of your fear by using it to motivate yourself to new levels of career performance, flexibility and financial literacy," Brown says. "Just as periods of prosperity pass, so do recessions. But your newfound skills will be with you always."