Bankruptcy is commonly misunderstood as nothing more than a last and final resort when an individual or family simply cannot afford to pay the financial obligations that have accrued over the years. While this is certainly the case in some situations, businesses can also leverage bankruptcy to restructure debt and avoid going out of business. In fact, this is what many well known businesses have done, often without the majority of their consumers realizing it. Since there are multiple types of bankruptcy, businesses can gear their plans toward the type that best suites their needs.
HHGregg has been selling appliances for 61 years, but they are now experiencing a swift and damaging loss of sales. In addition to closing 88 stores, shutting three distribution centers, and laying off 1,500 employees in an effort to escape the dead weight of unprofitable locations, HHGregg is also heavily weighing a Chapter 11 bankruptcy.
A Chapter 11 bankruptcy gives businesses an opportunity to reorganize their finances and pay their creditors, often by selling assets that can earn enough to pay back loans. Many businesses consider Chapter 11 bankruptcy to be more appealing than other bankruptcy forms, because it can protect from IRS collections and taxes until all payments have been made. Overall, a Chapter 11 gives a business a way to recover from financial strain, make important payments, and reorganize financial obligations, all while continuing to function unimpaired.
Payless is following in the footsteps of HHGregg. The shoe retailer recently reported the need to lay off nearly 170 employees now and close up to 500 of its 4,400 stores over the next three years. According to a company spokesperson, “Payless ShoeSource regularly reviews its organizational structure to ensure that we continue to meet the needs of our business, our customers, our community and our associates.” Given that Payless is approximately $665 million in debt, the company is working with debt restructuring attorneys to determine if a form of bankruptcy will help alleviate financial strain and allow the shoe retailer to continue serving customers around the country.