Your Favorite Retailer Has Filed For Bankruptcy; Now What?

By Bryan Pearson

(Photo by Drew Angerer/Getty Images)

For many retailers, Chapter 11 does not mean the end of their selling days. For shoppers, however, all sales should be considered final.

This is one piece of advice provided by bankruptcy experts for consumers wondering where on earth it is safe to shop these days.

They have reason to wonder. Nine retailers have filed for Chapter 11 bankruptcy protection so far in 2017, already matching the number that filed in all of 2016. These merchants include The Limited, BCBG Max Azria, Payless ShoeSource, Wet Seal, RadioShack and HHGregg.

In addition, Macy’s, Sears, J.C. Penney and others have each announced they will shutter more than 100 stores (Penney has delayed its closings, but still plans to shutter 138 locations).

For consumers, this presents a range of considerations from whether to put an item on layaway to shopping a particular store at all. But bankruptcy does not necessarily spell demise, said Stephen Newman, an attorney at Stroock & Stroock & Lavan in Los Angeles.

“The purpose of Chapter 11 bankruptcy is to reorganize the business and to restore it to efficient operations and to profitability, if possible, in a manner that will allow creditors to be paid,” Newman said. “For example, less heavily trafficked locations may be closed to preserve resources for the parts of the business that are more successful.”

From “Stuff” To Experiences

A key cause of the rise in retail bankruptcies can be traced to a redirection of spending, from physical “stuff” to experiences, such as meals and entertainment. Sales at bars and restaurants, for example, have advanced at twice the rate of retail since 2005, according to The Atlantic.

Shoppers are dramatically channeling more of their retail dollars to online-only merchants such as Amazon. Amazon’s North American sales accelerated five-fold from 2010 to 2016, to $80 billion from $16 billion.

Considering Amazon’s revenue exceeds that of Macy’s, J.C. Penney, Sears Holdings and Limited Brands combined, it’s understandable why so many merchants are struggling.

4 Caution Areas

So what does this mean to the average shopper? That can depend, in part, on how the retailer operated beforehand. If it provided good service and quality products, shoppers should have less to worry about, Newman said.

However, bankruptcy experts advised against certain types of transactions and suggested some precautions when making purchases. Following is their counsel to consumers.

1. Gift cards

Several experts warned against buying gift cards, even though such purchases may be protected.

“If you have a gift card, you’ll want to use it right away,” said Jef Henninger of the Law Offices of Jef Henninger in New Jersey. “The court will likely set a deadline for when gift cards can be used. Gift card holders who miss the deadline can file a claim to recover the value of the cards. However, those claims will be processed after the company’s major creditors, and there may be nothing left over.”

Put simply, the situation is just too uncertain to take the risk, said Robbin Itkin, bankruptcy attorney at Liner Law in Los Angeles. “Typically motions are filed immediately Go to the full article.

Source:: Business 2 Community

Be Sociable, Share!