More retailers are filing bankruptcy. Most business bankruptcies start out as attempts to reorganize under Chapter 11, but many end up being converted to Chapter 7, and some businesses don’t waste the time of trying to reorganize; they just file Chapter 7.
If you’re a customer of a store that files bankruptcy, what does this mean? It depends on what type of bankruptcy and what your relationship with the store is. If you’re simply a customer who shops there, the worst that’s likely to happen is the store will close and you will have to find somewhere else to buy whatever goods you used to buy at that store. But if you’re also a creditor of the store, you could be facing loss of your money.
You’re a creditor if the store owes you money or goods. For example, if you have a gift card to the store, that means you’re entitled to get goods from the store up to the amount on the card. The store owes a debt to you. Suppose you put money down on a car at a local dealership who files bankruptcy before you get your car. You’re now a creditor of the dealership because they owe you either your deposit back or the car. If you have a prepaid funeral plan with a funeral director that goes bankrupt, you’re a creditor.
In this case, your rights as a creditor are defined by the Bankruptcy Code. If the store filed Chapter 11 there’s a good chance it will just be business as usual, though some retailers who filed Chapter 11 have refused to honor gift cards. If it’s a Chapter 7, all bets are off. Unless the bankruptcy trustee continues to operate the business (a rare occurrence), everything gets frozen by the automatic stay. The trustee will liquidate the assets of the business and give notice to creditors to file claims. The notice will include a claim form that can be filled out and mailed back to the bankruptcy court. There will be a deadline for filing claims in the notice; if you don’t file by the deadline, your claim could be barred. Eventually, after the trustee has liquidated all the assets, the claims deadline has passed and the trustee has resolved any objections to claims that might exist, she’ll make a distribution or payment to the allowed claimants.
This process takes time, at least several months and possibly as long as years. Sometimes the debtor (the business that filed bankruptcy) has claims against third parties and the trustee has to sue those third parties to collect. Even just collecting what assets are on hand and getting them sold is a lengthy process. Watch for mail from the bankruptcy court and if you move, file a change of address form with the court so you continue to get notices. Follow up on those notices. If you aren’t sure what a notice means to you, talk to an attorney.