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Rue21, a well-known retailer, filed for retailer bankruptcy in May of 2017. If you ever happened to have checked out Rue21’s profit statement, you may have believed the teen-fashion retailer was a big success. In 2016, it received $54 million in revenue.
But rather than holding out a little longer and slipping into considerable debt, Rue21 suddenly filed for bankruptcy. What’s more interesting, however, is that retailers like this are not alone.
Why Did Rue21 File for Bankruptcy If They Are Profiting?
Rue21 is a part of the growing trend of retailers who end up filing for a Chapter 11 bankruptcy reorganization even though they still are proving successful. It is a tactic which could play out during the upcoming months among retailers that struggled during the hectic holiday season.
Several national chains made it through their own bumpy ride by filing for court protection from their creditors in 2017 even though they might have appeared financially balanced to the public. The movement demonstrates the significance of pre-emptive action for retailers that anticipate upcoming financial trouble.
Quite simply, they are proving profitable with their existing operations, but are financially broke due to the fact they are not able to make their payments for owed debt.
Of course, there is a concern regarding whether companies that are still in profit should be permitted to file retailer bankruptcy, which will generally affect product suppliers, retirees, landlords and financial creditors.
Apart from Rue21, national fashion brands True Religion and Payless Shoe Source filed  bankruptcy in 2017 and made it out well, at the same time with a lower number of stores. All three of these retailers were making a profit prior to taxes, interest and other items soon before they filed for bankruptcy.
What Is Chapter 11 Bankruptcy?
Filing Chapter 11 enables retailers to break leases on money-losing stores and reduce loans.
The lesson for retailers in the black despondency of Amazon-Walmart prominence and the decline of shopping malls is distinct – the intention of Chapter 11 is to develop a reorganized, generally-smaller company that can get a fresh start.
Certainly, you will discover other possible ways to restructure that don’t include public declaring deficits. Troubled women’s fashion retailer Charlotte Russe announced on Dec. 15 that they had discussed debt cuts with lenders by allowing them full-ownership of the company.
That option seemed sensible for retailers that can encourage creditors to make extreme concessions. But typically, lenders won’t voluntarily provide enough space for retailers to invest in the sort of digital infrastructure they feel is required to remain competitive with Amazon, Walmart and other popular retailers.
As a result, retailer bankruptcy has presented companies like Payless the possibility to start spending in an attempt to gain more online sales and not be so reliant on stores.
What Is Payless’ New Business Strategy After Filing Bankruptcy?
Payless has a second opportunity after it closed about 900 stores and reduced debt that private equity investors had loaded onto the company many years previously.
With roughly 22,000 employees and almost 4,400 stores within 30 countries during the time of its retailer bankruptcy, Payless had developed an impressive global brand. Still, several problems compromised the company’s operations. It had a restricted digital existence, prices that had exceeded too high after some time and the company had slipped behind its competitors.
But with considerably less debt right after the retailer bankruptcy, Payless is ready to reinvest in digital infrastructure and start a global business expansion with hundreds of brand new stores in under-served markets located in Mexico, rural Brazil, Africa and India.
Details About Retailers Profits Prior to Filing Bankruptcy
Comparable to Payless, both Rue21 and True Religion were profitable shortly before bankruptcy. Rue21’s showed decent 2016 earnings. True Religion revealed a pretax profit of $7.1 million within the initial five months of 2017 just before the company filed for court protection.
Both fashion brands went into bankruptcy as their debt loads became too uncontrollable and unsuccessful stores pulled them down.
The effects of their bankruptcies advise that retailers can endure their brush with financial distress, unlike Borders, Circuit City and Sports Authority which liquidated soon after filing. Approximately 1 in 5 True Religion locations closed in bankruptcy. Rue21 shut down about 1 in 3 of its stores.
How Vendors Affect a Retailer’s Decision to File for Bankruptcy

Numerous retailers wind up requiring retailer bankruptcy to pull through simply because the minute their vendors suspect possible financial trouble, they worry about maintaining their shipments and obtaining immediate payment.
This is exactly what has happened to retailers like Toys R Us. Without having products to sell or the advance cash to pay, companies like Toys R Us can’t pull through without the legal auspices of retailer bankruptcy.
When to Consider Filing for Retail Bankruptcy
Every case is different and depends on a large variety of factors. If you are questioning the benefits of filing for retailer bankruptcy, speak with a bankruptcy attorney at Northwest Debt Relief Law Firm. For a free initial consultation, call 206-488-0555, today!
The post Retailer Bankruptcy: Why Retailers File for It When They’re Not Even Broke appeared first on Portland Bankruptcy Attorney | Northwest Debt Relief.

As many of our readers know, Shenwick & Associates has developed a specialty representing taxi medallion owners with "underwater " medallions (underwater medallions are medallions valued at less than the bank loan). We were recently retained by a client who was at her wits’ end.  She co-owned a medallion; the medallion loan had matured, and her partner refused to sign a loan extension. If the medallion loan wasn’t extended, the bank indicated that they would foreclose on the medallion and sell it to repay the loan. Due to the depressed market value of medallions, now would not be the optimal time for a foreclosure sale!
The medallion owner was extremely stressed, so she went online and searched for attorneys with taxi medallion experience. She saw our blog, read a few the posts and called to set up an interview with Jim Shenwick. We asked her to bring in a list of property that she owned (assets), creditors she owed money to (liabilities), an after tax monthly budget for herself and the taxi medallion loan documents that she executed with the bank.
The client indicated that she did not want to file for bankruptcy, she wanted to keep the medallion and she wanted to extend the loan, if possible. She then retained us to handle the matter. Jim Shenwick called the attorney representing the co-owner. Fortunately, the co-owner’s attorney was reasonable and knowledgeable, agreed with our analysis of the situation, and counseled his client that a sale of the medallion or a foreclosure (which could result in relief of indebtedness income being reported to the Internal Revenue Service pursuant to § 108 of the Internal Revenue Code) was not in either party’s best interest.
We then discussed why his client did not want to extend the bank loan for the medallion, and he indicated that his client was aging and that notwithstanding the fact that his client was legally liable to repay the bank loan, the economic benefit of the prior loan accrued to our client (which we confirmed with her).  He suggested that the owner’s enter into an indemnification and hold harmless agreement, which provided that the lease payments from the medallion would go to service the loan, and if there was a default on the loan, that would be the responsibility of our client and not the co-owner. Both parties agreed to these terms and the agreement was drafted and executed.  The co-owner then executed the loan extension agreements with the bank and the loan was extended at a low interest rate for three years. The settlement between the two medallion owners and the medallion owners and the bank was advantageous for all parties. 
Jim Shenwick

Last month, New York State Comptroller Thomas P. DiNapoli issued a report on New York City’s financial plan for FY 2018 through FY 2021.  In the report, DiNapoli discusses NYC’s repeated postponement of the sale of 1,650 medallions because of the weakening market due to ride-hailing apps like Uber and Lyft, and NYC’s dubious assumption that these medallions will sell for $728,000 apiece (while an auction held on January 16th averaged about $175,000 per medallion).
A couple of observations about NYC’s financial plans with respect to medallion sales:
1. No person or entity will pay $728.000 for a NYC medallion! 2. Currently medallions are selling for approximately $185,000 per medallion and a $728,000 selling price is unobtainable.3. With the number of Uber, Via, and Lyft cars on the road, there is no need for NYC to sell additional medallions!4. In fact, maybe NYC should consider buying back existing “under water” medallions from owners whose medallions are “under water” due to Uber, Via, Lyft and NYC’s actions and inaction.5. If NYC were to sell an additional 1,650 medallions, the price of existing medallions will drop precipitously in value and will result in a further decrease of existing medallion owners’ earnings.

It’s a little-known secret — and too infrequently exercised right of a debtor — to “redeem” a car in Chapter 7 bankruptcy, that is, take the car back from the lender at what the car is worth, not what you owe.
Yes, you heard that right: A debtor in Chapter 7 bankruptcy has a right to take his or her car back from the lender at what the car is worth.
Section 722 of the bankruptcy code gives Chapter 7 debtors the right to force the lender, who is holding as collateral personal property intended primarily for personal, family or household use (such as the family car), to fully release its lien in exchange for a lump sum payment by the debtor of the retail value of the item.
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