Bankruptcy Lawyer Bryan W. Stone answers the question: “What is Chapter 11 Bankruptcy?”
The popular children’s toy store, Toys R Us has decided to close all of its United States store and liquidize assets after failing to survive the bankruptcy it filed last year. In 2017, Toys R Us filed a Chapter 11 bankruptcy in an effort to get a handle on almost $5 billion in debt. The company filed for Chapter 11 in September of 2017. The holiday shopping season was not as successful for Toys R Us as the company would have hoped, and they were unable to follow their debt plan and survive bankruptcy. As such, the company switched their bankruptcy to a Chapter 7 liquidation option instead, according to USA Today.
Each bankruptcy type is different. Switching from a Chapter 11 bankruptcy to a Chapter 7 is significant. In a Chapter 11 bankruptcy, a company is attempting to restructure their assets in a way that the company will once again flourish. A Chapter 11 bankruptcy is usually favored by businesses and corporations that simply need help organizing their debt to pay it off. The company will negotiate with their creditors so that the terms of their loans or lines of credit can be altered, without having to sell assets to pay off of the debt.
Alternatively, in Chapter 7 bankruptcy, assets are liquidized and sold off in an effort to pay off creditors. There is no negotiating with creditors to come to a different payment agreement; whatever assets the debtor has can be sold off to pay the creditors. Usually, Chapter 7 is popular with individuals who have too much debt, but businesses and corporations turn to Chapter 7 when they have no other options for survival.
The Switch from Chapter 11 to Chapter 7
You may be wondering why Toys R Us would close all of their U.S. stores and sell their assets, essentially eliminating the store in the U.S. There are many reasons that the Chapter 11 bankruptcy did not work for Toys R Us and they were forced to change to a liquidation plan.
- Competition in the Market: In a world of online shopping and two-day shipping, companies that rely on customers to come into the store to make their purchases suffer. Online retailers are often able to sell the same product at a lower cost, thus people choose to use the online retailer to save money. Toys R Us was not competitive in the marketplace once other online retailers flourished.
- Timing of Filing: Filing bankruptcy can be a strategic business practice. However, the timing of such bankruptcy is important. Filing bankruptcy right before the holiday season distracted the company from focusing on how to have a profitable holiday season. Instead, attention was given to the bankruptcy, and the 2017 holiday season was not as profitable as it needed to be.
- Dwindling Supply: Suppliers to Toys R Us got nervous with talks of bankruptcy, and product supplies faced delays and interruptions.
If you have any questions about bankruptcy, or are considering filing, the bankruptcy attorneys at Arnold & Smith, PLLC are here to help you. We are here to help you through this difficult chapter and see you through to a better financial future. The experienced attorneys as Arnold & Smith, PLLC will answer all of your questions and help you begin on the path to a better financial future. If you are contemplating bankruptcy in the Charlotte, Lake Norman or Monroe area, please call the skilled lawyers at Arnold & Smith, PLLC at 704-370-2828 or find additional resources here.
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