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First Magnus Financial Corp. shareholders and executives have reversed course on creating a $1 million assistance fund for former Southern Arizona employees still awaiting their final pay checks.

Instead, those employees will each receive a $2,000 check, tax-free, said spokesman Gary Baraff, in a press conference this afternoon.

The Tucson-based mortgage lender filed for Chapter 11 bankruptcy protection today after it suddenly stopped writing new loans on Thursday, and laid off most of its roughly 5,500 employees nationwide.

In Tucson, the company laid off about 650 of about 800 employees, Baraff said.

Company executives have said they were forced to shut down loan operations because they could no longer sell mortgages to investors on the secondary market.

Earlier today, the company said it has not been able to issue final pay checks to laid off workers because its assets were frozen by creditors who provided capital to First Magnus for making loans. Baraff said that company executives and shareholders would set up a fund using their own money to help former Southern Arizona employees. But at the press conference, Baraff said the company owners and executives decided that the creation of a fund might complicate its bankruptcy filing.

The $2,000 checks will be cut and mailed on Wednesday, and will also be paid out of owners’ and executives’ personal funds, Baraff said. Employees receiving those checks will also be eligible to receive their full pay checks when the company is able to pay them, he said.

In a document filed with the bankruptcy court, the company asked for immediate permission to pay its remaining 159 workers, including $8,333 to each of five company officers. First Magnus requested to pay its former employees “when funds become available” through a loan or the sale of assets.

The company has not offered immediate assistance to former employees elsewhere in the country. Baraff said the company decided to help only former Southern Arizona employees because their jobs are more specialized, and they are expected to have more difficulty finding jobs.

In its bankruptcy petition, First Magnus reported total assets of $942 million and total liabilities of $813 million.

Under Chapter 11 bankruptcy reorganization, lawsuits against a debtor are halted while the company works out a plan to repay creditors.

But the company indicated that it wouldn't attempt to reorganize the company.

"First Magnus believes that, under the protection of Chapter 11, it will have the time and opportunity that it needs to maximize the value of its assets for its creditors and other constituencies, and to affect an orderly wind down of the Company," the company said in a news release.

"We are saddened that First Magnus has been placed in this situation by the extensive and sudden liquidity crisis in the secondary mortgage market," said G.S. Jaggi, First Magnus president and chief executive officer. "After carefully considering our options, a Chapter 11 filing provides First Magnus with the ability to realize the highest value of our assets for our creditors."