From the Hotline: Chapter 11 Bankruptcy and COBRA

Question:  Is a Chapter 11 bankruptcy filing considered a qualifying event under COBRA for retiree medical plans?

Answer: Yes, covered retirees of an employer that declares Chapter 11 bankruptcy are eligible for continuation coverage if they lose coverage within one year before or after the bankruptcy proceedings begin and the employer still has a health plan in place for its employees. Any qualified beneficiary covered under the plan is entitled to elect continuation coverage if coverage is lost. The Omnibus Budget Reconciliation Act of 1986 amended COBRA to include employer bankruptcy as a qualifying event, and final regulations adopted the amendment. A Chapter 11 bankruptcy filing will be a qualifying event for certain qualified beneficiaries who lose coverage as a result of the filing. For this purpose, qualified beneficiaries include:

  • covered employees who had retired on or before the date of substantial elimination of coverage;
  • spouses of such retirees;
  • dependent children of such retirees; and
  • surviving spouses of such retirees.

For these purposes, spouses, surviving spouses, and dependent children must be covered under the plan on the day before the bankruptcy filing in order to be considered qualified beneficiaries. The bankruptcy filing must actually cause a qualified beneficiary to lose coverage in order to be considered a qualifying event. However, for this purpose, a loss of coverage includes a substantial elimination of coverage within one year before or after the date of the commencement of bankruptcy proceedings.

Retirees may continue their coverage until their death. For a spouse, surviving spouse, or a dependent child of the retired employee, the maximum coverage period ends at the earlier of either:

  • the qualified beneficiary’s death; or
  • the date that is 36 months past the death of the retired covered employee.