Buyer, Beware of Retailers' Bankruptcy Filings
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The fallout from the current economic downturn is hitting retailers hard.
Linens 'N Things, a home goods merchandiser, is going out of business. Last month, it began closeout sales at its remaining 371 stores in 48 states. More than $1 billion of the retailer's home furnishings will be sold by liquidators.
New York-based Steve and Barry's, which sold nice but inexpensive clothing, including a line developed by tennis star Venus Williams, is being shut down.
Circuit City is under Chapter 11 bankruptcy protection.
By the end of the year, an estimated 6,500 retail stores nationwide will be closed, according to Joe Skorupa, editor-in-chief for RIS News, which follows the retail industry.
In the first half of this year, business bankruptcy filings increased 41.6 percent compared with the same period in 2007, and the U.S. economy saw nearly 34,000 businesses go under, said Steve Cox, a spokesman for the Better Business Bureau.
"In the wake of so many bankruptcies, and with many businesses pinning their hopes on the holiday season, customers have been and will most likely continue to be in the dark, wondering if they'll ever get the goods they paid for or if the gift cards they are holding are even worth anything," Cox said.
Put the words "in bankruptcy" beside the name of a retailer and it scares off some customers. In some cases the fear isn't necessary. Kmart filed for bankruptcy protection in 2002 and survived to sell another day.
But others don't recover. Gone are the Montgomery Ward retail stores (although the brand name has re-emerged online).
You certainly may be able to get fantastic deals when a company files for bankruptcy protection, but there are some things you need to know to protect yourself, the BBB advises.
First, you need to understand what it means when a business files for Chapter 11 or Chapter 7.
Under Chapter 11, a business intends to reorganize while staying open. The filing allows court actions against the company to stop while management tries to get control over its finances. With a Chapter 7 filing, a company is saying essentially it's broke, and its assets are liquidated to pay creditors.
