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Bankruptcy Law Blog

Saturday, April 28, 2018

Why Isn’t Stuff Cheaper At Toys R Us’s Going Out Of Business Sale?

It’s the end of an era. In case you haven’t heard, Toys R Us has filed for bankruptcy, and is closing all of its stores. As it wraps things up, some products are on sale up to 30% off, but there is a lot of chatter on social media about the prices still being high. While we as consumers may wish the discounts were bigger and the prices were lower, the fact that things aren’t being sold for pennies on the dollar is probably a good thing from a bankruptcy perspective.

Businesses, like people, get to choose between two main types of bankruptcy.

People can file a Chapter 7 bankruptcy, and sell basically all of their assets in order to satisfy some creditors and get remaining debt forgiven. Or they can file a Chapter 13 bankruptcy and enter into a court-supervised repayment plan that gets them back on firm financial footing without selling off a lot of assets or getting much debt forgiven.

Businesses can also file a Chapter 7 bankruptcy, which is virtually identical to the Chapter 7 bankruptcy that people file. Or they can file a Chapter 11 bankruptcy, which is similar to the Chapter 13 bankruptcy in that the focus is on renegotiating debt and reorganizing things in order to get back on firm financial footing.

When Toys R Us filed for bankruptcy under Chapter 11, it’s plan was to shut down a few stores, renegotiate its debt, and get back to business. But it turns out things weren’t so simple. Now, all the stores are closing and the chain’s inventory is being liquidated.

Although consumers would like to see the store’s prices drop down to next to nothing, the fact that discounts are only at 30% or less right now is good for the company’s remaining employees and creditors. Losing money on all their products would make it hard to pay employees, and would send a shock-wave through the toy industry. Companies like Mattel, the maker of Barbies and Hot Wheels, are already under stress because of the Toys R Us bankruptcy. Pulling the rug completely out from under them could shut a lot of them down too.

You can think about this from a personal perspective as well. If you are selling off assets to pay off debt, don’t you want the best prices you can get? Why would a business think differently? So, let’s give Geoffrey The Giraffe a break as he winds things down.

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Padgett and Robertson assist clients with Bankruptcy, Personal Bankruptcy, Consumer Bankruptcy, Chapter 7 Bankruptcy, Chapter 13 Bankruptcy and The New Bankruptcy Law in Mobile, Alabama and throughout southern Alabama. Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”



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Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”