45165067 - businessman clinging to rope escape from taxIn today’s economy, it is not uncommon for companies to experience financial difficulties, and some may even have to file bankruptcy or close temporarily. The lucky ones are able to reorganize. Just because a company declares bankruptcy, it is not absolved of all insurance requirements. Here are a few important facts company owners should know concerning insurance, bankruptcy and company reorganization.

Any insurance that is compulsory for companies must be continued even if a company is filing for Chapter 11 (reorganization) or Chapter 7 (liquidation). State and federal financial responsibility requirements must be maintained.

Any contracts requiring insurance coverage will still need to be upheld, meaning if a contractual relationship requires liability or another type of insurance, the insurance requirements still apply for as long as the contractual relationship exists.

Basically, companies experiencing financial difficulties including bankruptcy and reorganization should maintain insurance coverage. Some insurance companies may issue a cancellation of coverage once they learn of an impending bankruptcy or a renewal policy may not be offered. This will vary based on the insurer and on state insurance laws.

Claims against a company’s in-force insurance policies at the time of bankruptcy may be paid through a dedicated trust fund set up as a source of recovery for claimants. A bankruptcy court approves provisions made to satisfy insurance claims. Bankruptcy laws concerning insurance during bankruptcy or reorganization may vary by state so it is best to seek legal advice from a qualified bankruptcy attorney in your area.

All companies sometimes experience financial hardships, but it doesn’t have to mean the end of the road for your business. Consider a qualified financial counselor to help your business work through difficult times. If you do file bankruptcy, consult with a business insurance professional to make sure you maintain any federal- or state-mandated insurance requirements.