The Benefits of Bankruptcy

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Chapter 11 Bankruptcy Saved Queen City Appliances
Whenever we hear the word “bankruptcy,” the first thing that comes to our mind is probably not relief. For most of our readers here, “bankruptcy” seems and feels like this serious, nasty term. But for many business-owners out there, they will tell you that it is actually one of the greatest inventions in our modern business world.
Queen City Appliances is a symbolic brand in Charlotte, North Carolina. This family-owned business has been operating for more than 60 years and had as many as 17 stores around town selling all kinds of home appliances, such as dishwasher, flat-screen TV, refrigerator, and even mattress. And then on 2nd February 2012, a local newspaper agency ran a story reporting Queen City Appliances has got into serious trouble, after running the business for 6 decades long, the store had filed for bankruptcy.
This happens a lot in America, according to the American Bankruptcy Institute, 38,062 businesses filed for bankruptcy in 2017, and 37,968 in 2016. Of 2017’s filings, 5,744 were Chapter 11. In today special edition, we tell you the story of what Chapter 11 bankruptcy code is, and how it can revitalise dying businesses.
What is Chapter 11?
In the United States, when a person defaults, there are two common bankruptcy options, Chapter 7 and Chapter 13. Chapter 7 attempts to neutralise your debts for you to get a clean slate, while Chapter 13 seeks to give you more time to catch-up with due loans and also neutralise part of your past debt.
For business-owners, Chapter 11 is the business version of Chapter 13, it gets you more time to pay your current bills plus a portion of your past bills. Businesses can also file Chapter 7 liquidation if they’re ready to shut down their businesses.
Just like Chapter 13, a business guided in Chapter 11 still has to pay their current bills and a portion of their past bills. But for businesses, the rule is even stricter because you have to get approval for every decision, even just to pay your utility bills or any other operating costs. It is a very difficult time but Chapter 11 can save your business if you can make it through. And that is exactly what happened to Queen City Appliances.
How Queen City Appliances Got Into Trouble
Roddey Player is the CEO of Queen City Appliances, his dad established the company in 1952. Roddey took over the company when his dad died. Business was amazing for a while, so Roddey and his family decided to borrow money and expand their business. Queen City Appliances went from eight stores to seventeen stores by 2009. Then, the recession hit – housing market crashed.

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Immediately, sales of cookers, dishwashers, refrigerator and dryers fell significantly. Roddey was very optimist, trying to keep everything going hoping that it could not get any worse. It got worse, and Queen City Appliances cannot pay their bills. The bank was calling for the due loans, so they had to file for bankruptcy. When someone files for bankruptcy, it becomes public immediately. Right after Roddey submitted the bankruptcy petition, the local newspaper agency “Charlotte Observer” published a story online. After running the company for 6 decades, Queen City Appliances declared bankruptcy. Roddey and her mom decided to try and save the family business with Chapter 11.

How Chapter 11 Saved Queen City Appliances
When you file chapter 11, it’s like hitting a big pause button. Everybody you owe money to, you don’t have to pay them for the moment. However, you do have to make a list of all the creditors you owe money to. In Roddey’s case, their list was 134 pages long and they owed millions of dollars that they can’t afford to pay. He hired a lawyer and they had to convince the bankruptcy judge and their creditors that it would be best for all if they stayed open than to shut down the business. They finally agreed. 
What happened next?
After making such tough decision, Roddey and a turnaround expect he hired came up with plans that could work. Part of the plan including laying off 140 employees and close thirteen stores down. They went from seventeen store to just four, running their business as efficiently as they can, and paying down their debts bit by bit. Under Chapter 11, Roddey had to submit a detailed progress report to the bankruptcy court every single week. After 18 months under Chapter 11, Queen City Appliances emerged from bankruptcy and went back to business. Operating business under Chapter 11 is very tough – in most cases,  businesses only have 20% success rate of making it work. But, it is really a game changer for those who did. In today cover story, Queen City Appliances is the successful game changer.

During 2007~08 financial crisis, thousands of companies went bankrupt in the U.S., but a small fraction of them revitalised. Economists explain this mechanism is, among other factors, why U.S. economy bounced back faster than other nations. Today,  European countries have begun adopting laws that are similar to chapter 11. They saw the beauty in the U.S. system of getting a second chance in business.