Seeing a company you love—maybe a local retailer or a big name like Toys “R” Us—file for bankruptcy can feel like a shock.
It’s not just about failure; it’s a strategic move that can save jobs, restructure debt, or give a business a fresh start.
As I sit here today, the news is buzzing with Party City’s liquidation after its 2024 bankruptcy and Joann Fabrics’ recent Chapter 11 filing—reminders that this process is more common than you might think.
Let’s walk through why companies take this step and how it unfolds, breaking it down so it feels real and relatable.
What Is Bankruptcy, Anyway?
Bankruptcy is a legal process where a company (or person) declares it can’t pay its debts as they come due.
It’s governed by U.S. federal law under the Bankruptcy Code, offering a structured way to either reorganize or liquidate.
For businesses, it’s not always the end—it can be a lifeline.
The American Bankruptcy Institute (ABI) reports that in 2024, over 6,500 companies filed for bankruptcy, a 30% jump from 2023, reflecting economic pressures like inflation and shifting consumer habits.
As Warren Buffett once said, “I’ve seen more than one company go into bankruptcy and come out stronger.”
That’s the hope for many, though outcomes vary.
Why Do Companies File for Bankruptcy?
Companies don’t file lightly—it’s often the last resort after other fixes fail.
Here are the main reasons:
- Overwhelming Debt: When loans or bonds pile up, interest payments can choke cash flow. Big Lots, filing Chapter 11 in 2024, cited $1.2 billion in debt it couldn’t service amid declining sales, per its court filings.
- Declining Revenue: Falling sales due to competition or market shifts can sink a company. Retailers like Sears struggled as e-commerce grew—Amazon’s rise cut its market share from 2% to under 0.5% since 2010, per Statista, pushing it into bankruptcy in 2018.
- Economic Downturns: Recessions hit hard. The 2020 COVID-19 slump saw J.C. Penney file after store closures slashed revenue by 40%, according to its bankruptcy documents.
- Poor Management: Bad decisions—like overexpansion or misjudged investments—can lead to collapse. RadioShack’s 2015 filing stemmed from mismanaging its brick-and-mortar focus, per a 2016 Harvard Business Review analysis.
- Legal or Industry Pressures: Lawsuits or regulatory changes can tip the scales. Purdue Pharma filed in 2019 over opioid litigation costs exceeding $10 billion, per the U.S. Bankruptcy Court.
The Step-by-Step Process
Bankruptcy isn’t a free-for-all—it follows a clear path, depending on the chapter filed:
1. Deciding on the Chapter
- Chapter 11: The “reorganization” option. Companies like Delta Airlines (2005) used it to renegotiate debts while keeping operations alive. It’s common for big firms aiming to restructure.
- Chapter 7: The “liquidation” route. Assets are sold off, and the business closes—think Borders Books in 2011. It’s faster but final.
- Chapter 9 or 13: Rare for companies—Chapter 9 is for municipalities (e.g., Detroit, 2013), and Chapter 13 is for individuals.
2. Filing the Petition
The company files with a bankruptcy court, listing assets, debts, and a plan.
Party City’s 2024 Chapter 11 filing included $1.7 billion in liabilities, per Reuters.
This triggers an automatic stay, halting creditors’ collection efforts.
3. Appointing a Trustee or Committee
In Chapter 7, a trustee liquidates assets.
In Chapter 11, a creditors’ committee often forms to negotiate with the debtor.
The U.S. Trustee Program oversees, ensuring fairness.
4. Developing a Plan
For Chapter 11, the company proposes a reorganization plan—cutting debt, closing stores, or renegotiating leases.
Joann Fabrics’ 2025 plan includes shedding 400 of its 800 stores, per its filing.
Creditors vote, and the court approves if it’s feasible.
5. Implementation or Liquidation
If approved, the plan executes—debts are restructured, and the company emerges leaner.
If it fails or it’s Chapter 7, assets are sold, and proceeds go to creditors in order of priority (secured first, unsecured last).
The ABI notes 60% of Chapter 11 filers successfully reorganize.
6. Discharge or Closure
In Chapter 11, remaining debts may be discharged if the plan succeeds.
In Chapter 7, the business winds down, and the case closes.
Who Benefits and Who Loses?
- Benefits: Reorganization can save jobs and suppliers. Delta’s 2005 filing preserved 50,000 jobs, per its post-bankruptcy report. Creditors might recover more than in a chaotic collapse.
- Loses: Shareholders often see stock value plummet—Sears’ shares dropped 99% post-2018 filing, per Yahoo Finance. Unsecured creditors (like small vendors) may get pennies on the dollar.
Economic and Political Ripples
Bankruptcies signal economic health.
The 2024 spike aligns with 2.5% inflation (BLS, August 2025) and tight consumer spending, per the Federal Reserve’s 2024 survey.
Politically, they fuel debates—some blame deregulation, others corporate greed.
Senator Bernie Sanders called out “reckless financial practices” after Sears’ fall, per a 2018 statement, pushing for tighter oversight.
What It Means for You
If you’re an investor, bankruptcy can wipe out stock value, so diversify.
As a worker, it might mean job cuts—retail has already lost 76,000 jobs in 2025, per the Bureau of Labor Statistics.
For consumers, it can disrupt access—pharmacy closures from Walgreens’ 2024 filing created “deserts” in some areas, per Coresight Research.
Final Thoughts
Companies file for bankruptcy when debts or market shifts leave no other way out, using it as a tool to restructure or close shop.
It’s a tough process, but it can offer a second chance—or a dignified exit.
Watching Party City and Joann today, it’s clear the economy’s evolving, and these filings are part of that story.
Stay informed, whether you’re holding stock or shopping local.
For more, check American Bankruptcy Institute (abiworld.org) for stats, U.S. Courts (uscourts.gov) for filings, or Reuters (reuters.com) for updates.
Luckily for you, FrankNez Media publishes the latest in U.S. economics, politics, and financial news to keep you informed.
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