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Bankruptcy doesn’t mean what it used to; no longer the end

(FINANCE NEWS) With the way the world works now, bankruptcy doesn’t necessarily mean game over.

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When it’s over, it’s over. Perhaps you heard your best friend utter this phrase after a bad break-up. It’s true, most things that end, end for good. Except in this case, when it comes to the retail business.

We have seen a record number of retailers declare bankruptcy this year. Beloved teen retailers like Wet Seal have closed down their stores and malls have become ghost towns.

Reuters estimates that nineteen major retail chains have already shut down for good. While you may not miss the tight, neon dresses sold at Bebe, closures of all of these retailers result in a tremendous loss of jobs.

And it is not only job losses from the store in your hometown, often it is hundreds of locations across the nation.

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For most of these retailers, bankruptcy was the definitive end to the business. After filing, most companies choose to close all locations and liquidate the assets. This is the most common path to take, until now.

Even with the surge of bankruptcy, those behind the business are finding alternative paths to keep the business alive.

Behind the scenes, there are three core groups invested in every business: the company’s creditors, vendors, and landlords. All of these groups have a vested interest in keeping the company alive even if they are in debt.

The most recent trend for bankrupt businesses has been to keep stores open and negotiate debt loans rather than shutting down everything. The truth is that a lot of these businesses still attract customers and have a large cash flow, even if they are technically bankrupt.

For instance, Toys ‘R’ Us manages to take in $800 million each year on average which makes it a viable business. Of course, they are $5 billion in debt, but with an extension and restructuring of their business, they could one day turn a profit. However, this will only happen if they are given the chance to keep their doors open.

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There are other options to lending helping hands to bankrupt businesses. After the popular teen retailer Rue21 declared bankruptcy landlords agreed to reduce their rents 20% on average. Though these situations are not ideal, this mentality gives businesses a life beyond bankruptcy and save thousands of jobs in the process.

Written By

Natalie is a Staff Writer at The American Genius and co-founded an Austin creative magazine called Almost Real Things. When she is not writing, she spends her time making art, teaching painting classes and confusing people. In addition to pursuing a writing career, Natalie plans on getting her MFA to become a Professor of Fine Art.

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