Will Toys R’ Us File for Chapter 11 Bankruptcy?

Posted on September 20, 2017 at 12:00pm by
Chapter 11 bankruptcy form

Amazon has become notorious for knocking out its competition with lower prices and convenient online shopping options. As a result, shopping malls and retail outlets across the country are having great difficulty keeping themselves profitable. Toys R’ Us may be the latest casualty.

According to multiple press outlets, Toys R’ Us has hired a law firm that specializes in Chapter 11 bankruptcy cases. Sources familiar with the situation claim Toys R’ Us is reviewing options for restructuring $400 million in debt that comes due next year. Chapter 11 is only one of several possible options being considered.

Toys R’ Us’ competitors, such as Amazon and Walmart, have decreased prices and improved availability for their products. Parents are using these competitors for their lower prices or convenient online shopping options. Other businesses that sell children’s products have already filed for Chapter 11 protection. For example, Gymboree filed earlier this year in June.

What Are the Advantages of Chapter 11 Bankruptcy?

It does not mean Toys R’ Us is closing its doors forever by filing for Chapter 11 bankruptcy. Companies do not file Chapter 11 bankruptcy to go out of business. During the reorganization process, businesses work with multiple parties to become profitable again. Chapter 11 advantages include:

  • Maintaining control of operations: Businesses maintain control of operations as debtors in possession.
  • Stopping lawsuits: An automatic stay is issued after filing for bankruptcy. The automatic stay stops creditor collection attempts and lawsuits.
  • Businesses can reorganize debts: Businesses can reorganize or discharge certain types of debts. For example, a business may negotiate new lease and contract terms.
  • Businesses can pay back debts over 10 years: Chapter 11 repayment plans can last for up to 10 years. Businesses will have more time to fulfill obligations to creditors.

Depending on the circumstances a business is facing, there could be other advantages to filing for Chapter 11. By speaking with a Kansas City business bankruptcy attorney, businesses can begin laying the foundation for a strategy to become profitable again.

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