Bankruptcy of a Retailer
The bankruptcy of a retailer is a classic reorganization bankruptcy (Chapter 11 or Chapter 13). This is true because it is an ongoing business whose value lies in its location, its stock, its good will and its ongoing nature.
Unfortunately, retailers often have floor plans or other financing devices that encumber all of the inventory. So the threshold question for the retailer who is facing insolvency is "What is there to be saved?"
If there is something to be saved, the retailer must be ready to part with some of it in order to succeed in a Chapter 11, because he must offer something to the unsecured creditors and he may have to secure the vote of the primary secured creditor with cash.
Early on, the retailer should determine whether a reorganization is feasible.
If a reorganization is not feasible, and the business is small and fully encumbered, the debtor should consider a Chapter 7 and starting afresh after his bankruptcy.
Although a store is not exempt property, if it has no equity it can pass through the bankruptcy and emerge on the other side unscathed.
In the event that the business is a small corporation that contains the store, the debtor must take great care to address the tax issues that will follow him after the bankruptcy and as a result of his discharge. His tax basis in the stock of his corporation will be reduced to zero.