I read a story in the paper yesterday about Homelife, the chain of furniture stores that just declared bankruptcy. The article said that people who have bought furniture from the company recently but have not received it are most likely out of luck. (Those who paid by credit card, they said, can get it refunded through the credit card company.)
Of course, we all remember CyberRebate. After they declared bankruptcy, anyone who had a pending refund with them is unlikely to ever see it.
My question–how can they do this? Filing bankruptcy is not something that someone does at the spur of the moment–I’m guessing that you’ve got at least a few days’ notice. Can you continue to conduct business as usual, taking and cashing checks, promising delivery in three days, knowing full well that you’re probably not going to hold up your end of the bargain? Isn’t that fraud?
Legally speaking (but IANAL) you haven’t filed for bankruptcy until you officially file the papers and the court clerk puts the official stamp on it, so you’re not in some sort of limbo, if I understand your question correctly.
Yes, it takes awhile to prepare the paperwork, and yes a company keeps doing business as usual during that period.
As to whether it’s ethical to conduct business as usual when things are getting worse, let’s just say that at the same time the lawyers are drawing the papers, the executives are usually on the phone with their suppliers, trying to get an extension, another line of credit and other patches to keep the company solvent for awhile longer.
At the moment, at least, HomeLife is still claiming on their website that everyone with unreceived merchandise will be getting a refund. I guess it remains to be seen whether they can follow through on this promise.
My brand-new wife and I ordered a sofa from a HomeLife in late June, and we got back from our honeymoon last weekend to find out that they’d gone belly-up. We’d paid for it with a Sears credit card, obtained through the HomeLife store at the time we made the purchase.
I spoke to the folks at Sears Credit this morning, and it seems like we’ll be OK. Sears has placed the charge “in dispute”, meaning that we need to make no payments at the moment, and finance charges/late fees will not accrue. Sears is giving HomeLife until August 3 to give us a refund (i.e., re-credit the Sears card). If HomeLife fails to do it by then, Sears tells me that they’ll credit our account for the charge amount and go after HomeLife themselves.
I’ll believe it for sure when it happens, but for the moment it seems that Sears is going to go to bat for us willingly.
Sears sold a majority interest in Homelife to Citicorp Venture Capital in 1999. As a minority stockholder, they have no special obligation, the fact that their name used to be on the door notwithstanding.
Unless I miss my guess, the assistance brad_d is getting from Sears is because he purchased the merchandise with a Sears credit card.
Lemme look into this some more, Doctor J. If I’m not a creditor (I don’t think I am, but ought to check), than I may be able to render some assistance.
When a firm or individual files bankruptcy, it (he/she} must file a list of all their creditors. Unfortunately for most of us, secured creditors (mortgagees, holders of other liens) get top priority in being paid off. This usually leaves nothing for the unsecured creditors. If there are many secured creditors, they may agree to get only a portion of the debt back. Once a debt has been listed in bankruptcy, it is an affirmative defense to the former bankrupt company (in the event it reorganizes) that the debt was discharged in bankruptcy. This is true even if you did not collect anything because there were not enough funds and you were unsecured. There are certain exceptions, such as fraud and alimony. Often, if the bankrupt company is a mortgagor, the mortgagee is allowed to institute foreclosure proceedings, or continue such proceedings in process, but not until permission is given by the court.
However, continuing in business is not a fraud. Once the bankruptcy suit is filed, a trustee in bankruptcy is appointed to oversee the business. I am not a bankruptcy expert and maybe one who is can add more.