San Jose Bankruptcy Lawyer Talks About the Circuit City Bankruptcy
San Jose Bankruptcy Lawyer Talks About the Circuit City Bankruptcy
The current recession is not just hurting the Wall Street stockbrokers. Businesses that the consumers visit on a regular basis are also being hit, hard. Well known Circuit City has been in Chapter 11 Bankruptcy since November 2008. As a reminder, the goal of a Chapter 11 Bankruptcy is to give the Debtor a chance to “reorganize’ their debt. This could be redefining the terms of the loan or finding alternative funding.
Circuit City, when it filed bankruptcy in 2008, had over $2.3 billion dollars in debt with declining sales. The top 30 unsecured creditors were owed over $600 million dollars. Therefore, Circuit City really had no easy way to reorganize a debt of that magnitude. For example, even if the top 30 creditors agreed to a 25% debt reduction of debt, that would still mean $450 million dollars was owed. Furthermore, the top 30 creditors included big named vendors such as HP, Samsung, and Sony. A reduction of Circuit City’s debt would mean each of those creditors would have to record a loss as well. How do these companies justify the loss to their shareholders just to keep Circuit City open? Therefore the reorganization of debt was both massive and complex.
Circuit City tried to find a buyer as alternative funding. A buyer could have infused capital into the company with some sort of payment arrangement on the debt. A buyer could have given the creditors hope that Circuit City would keep selling inventory so that they could pay off the debts they owed. Unfortunately, nobody was willing to purchase Circuit City in this kind of market.
The failure to find alternative funding or any realistic reorganization of the debt meant liquidation was the only option. In the Bankruptcy world, the liquidation means that Circuit City would close all of its stores. They have hired liquidation specialists who will help each store sell their inventory at a controlled pace then close the stores. The lesson to learn is that not every Chapter 11 Bankruptcy is a successful reorganization. However, Circuit City’s liquidation through the bankruptcy court was transparent enough that there was no wide scale panic by consumers or creditors. That should considered a win for the bankruptcy court.
If you have a question regarding Bankruptcy please contact Sagaria Law at 1-800-941-6730 for a free consultation or visit us at www.sagarialaw.com. Our team of Bankruptcy Lawyers can assist you with all aspects of your case. If you are have questions about filing a chapter 7 bankruptcy, a chapter 13 bankruptcy, lien stripping, discharging debt, etc. we can help! We have bankruptcy attorneys in San Mateo, Fremont, Sacramento and San Jose.
