On May 4, 2020, Arizona Zero Down Bankruptcy Lawyers Write:
Most American shopping malls have been closed for at least 6 weeks because of stay-at-home and quarantine orders issued in response to the coronavirus pandemic. Arizona is one of the majority of states that are keeping people in a “Stay at Home” mode. Unsurprisingly, many large retailers have been teetering on the edge of bankruptcy.
Some stores have strong presence in outlet malls, which see boosted sales during warmer seasons. With travel and tourism almost at a complete halt, J. Crew and other retailers have seen rapidly falling sales. Chinos Holdings, which owns J. Crew, an American clothing company that was founded in 1947, filed Chapter 11 Bankruptcy on May 4, 2020.
J. Crew will be utilizing Chapter 11 Bankruptcy to convert $1.65 billion in debt into equity for its main creditors, the largest of which being Anchorage Capital. The company will continue operating its stores and making smaller business decisions, but larger decisions will be overseen by Anchorage Capital and the rest of the major creditors. Chances are J Crew will come out of this Chapter 11 bankruptcy filing and continue on it’s business, but there is always a possibility that retail may never return to the levels it was pre-COVID-19.
J. Crew also intends to keep running its subsidiary, Madewell, but is considering making the company public. Because of the effort creditors have to go through to collect and the intricacy of Chapter 11 procedures, this Chapter of bankruptcy is typically only used by large companies. However, unlike business owners’ other option, Chapter 7, the business can continue running in a Chapter 11.
In a Chapter 7 bankruptcy, unsecured debts are liquidated and discharged, so the debtor no longer has to pay them. This Chapter of bankruptcy is often sufficient for small business owners whose personal assets are on the line as collateral for business debts. The drawback to filing Chapter 7 is that the business owner will have to surrender substantial business equipment and cease operating under their current business name. Filing Chapter 7 is always a faster and cheaper process than filing Chapter 11.
While J. Crew is clearly going through a downswing, it is expected to survive after bankruptcy. Other retailers that may follow suit and declare bankruptcy amidst the pandemic include JC Penney, Sears, Neiman Marcus, and Pier 1 Imports.
As stay-at-home orders begin to expire or be loosened, retailers in Arizona and throughout the country now have to decide whether reopening is worth the costs and risks. Shoppers will both be reluctant to go to the mall once quarantines are lifted, and will have less money in their pockets with skyrocketing unemployment rates. Sanitation and social distancing procedures will be strictly enforced during reopening phases, and can be costly to comply with. Some retailers are pouring their efforts into e-commerce to avoid these pitfalls and reopen when it is safer. However, will those efforts be enough?
Stay tuned as I am sure more retailers will seek the assistance of bankruptcy protection. As a consumer, if you become overwhelmed by debt, contact an experienced bankruptcy attorney and find out what debt options are available. Many local attorneys offer free consultations. Our Arizona bankruptcy law firm offer both free consultations, a Zero Down Bankruptcy option, chapter 7 and Chapter 13 representation, and other debt relief forms that may help you get back on your feet. Call us today at (602) 609-7000.