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Archive for Thursday, November 27, 2008

It pays to keep track of retail bankruptcies

November 27, 2008

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The fallout from the economic downturn is hitting retailers hard.

Linens ’n Things, a home goods merchandiser, is going out of business. New York-based Steve and Barry’s, which sold nice but inexpensive clothing, is being shut down. Circuit City is under Chapter 11 bankruptcy protection.

By the end of the year, an estimated 6,500 retail stores nationwide will be closed, said Joe Skorupa, editor-in-chief for RIS News, which follows the retail industry.

In the first half of this year, business bankruptcy filings increased 41.6 percent compared with the same period in 2007, said Steve Cox, a spokesman for the Better Business Bureau.

You may get some fantastic product deals when a company files for bankruptcy, but you need to know some things to protect yourself, the BBB advises. First, you need to understand what it means when a business files for Chapter 11 or Chapter 7.

Under Chapter 11, a business intends to reorganize while staying open. The filing allows court actions against the company to stop while management tries to get control over its finances.

With a Chapter 7 filing, a company is saying it’s broke, and its assets are liquidated to pay creditors.

If a business intends to continue operations under Chapter 11, it will often redeem gift cards, service customers and deliver goods. However, some Chapter 11 bankruptcies can turn into a Chapter 7 liquidation. Then the chances for the consumer to receive any compensation are greatly diminished, the BBB says.

Here’s what you can expect if a retailer files for Chapter 7:

• If you have products or services that haven’t been delivered, you might get burned. However, if you paid with a credit card, you might get your money back. You can dispute any charges with the lender that issued the credit card using the Fair Credit Billing Act. You can request a “chargeback” from the credit card issuer.

Write to the credit card company as soon as you discover you won’t get your product because of a bankruptcy filing. Include your account number and the amount that you are declining to pay. You may get similar protection for something purchased with your debit card even though the Fair Credit Billing Act only applies to credit cards.

The BBB says that if you paid with cash or check, file a claim (typically within 90 days of the bankruptcy filing) and wait in line. More information on filing a claim, including downloadable forms, is available online at www.uscourts.gov.

• The validity of any warranty will vary. If a retailer goes out of business, you might get your product concerns resolved under the manufacturer’s warranty. Extended warranties and service plans are typically provided by third parties and are not affected by a retailer’s liquidation.

• The BBB advises that you redeem gift cards as soon as possible to avoid any headaches with bankruptcy filings and court actions.

This holiday season, don’t look just at your newspaper’s sales circulars. Read the business section to see which retailers are doing well and which are going down.

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