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Circuit City seeks bankruptcy protection

Chain will attempt to reorganize after competition from Best Buy, Wal-Mart, others eats into profits.

By Mark Clothier and Dawn McCarty
Bloomberg News
Posted: Tuesday, Nov. 11, 2008

More Information

  • Getting your money back

    As the down economy continues to crunch retailers, consumers are wondering what will happen to their gift cards, warranties and unfulfilled orders if a store goes under.

    In a news release Monday, the Better Business Bureau offered advice on what to do and how to get your money back.

    Circuit City filed for bankruptcy protection Monday.

    If a business files for Chapter 11 bankruptcy protection, as in Circuit City's case, the company intends to reorganize and continue to do business as usual. Those companies will often redeem gift cards, fulfill services and deliver on goods, the BBB says. When a company files for Chapter 7 bankruptcy, the business will likely close and liquidate its assets to pay creditors. In those cases, consumers are less likely to receive compensation, BBB officials say.

    The BBB offers the following advice:

    Orders: When a retailer's assets are liquidated, customers are usually the last in line to get their money back. The BBB recommends that customers pay with credit cards, because they might be able to dispute charges with their credit card company and get their money back if the retailer liquidates.

    Consumers who paid in cash, check or debit card need to file a claim with the bankruptcy court.

    Warranties: If a retailer goes out of business, the consumer might be able to rely on the manufacturer's warranty. If the manufacturer goes out of business, the consumer might be able to rely on the retailer's warranty. Many extended warranties are provided by third parties and are typically not affected by a retailer or manufacturer going under.

    Gift cards: In Chapter 11 bankruptcies, the court will decide if the business has to honor gift cards. In Chapter 7 cases, the gift card holder must file a claim. In some of those cases, consumers might get at least part of the card's value back.

    The BBB advises consumers to redeem gift cards as soon as they are received to avoid problems down the road. For more information, visit www.bbb.org.

    Kirsten Valle


Circuit City Stores Inc., the 59-year-old seller of televisions and computers, filed for bankruptcy protection Monday, becoming the biggest retail casualty of the slowing U.S. economy and frozen credit markets.

The chain sought Chapter 11 protection after suppliers that were concerned about declining sales cut off credit and demanded up-front cash for shipments. The retailer, which has nearly 1,500 U.S. and Canadian stores, aims to win support from suppliers for a reorganization plan that may allow it to exit court protection by June, its lawyers told a judge Monday.

“It's all about the vendors,” said Paul Traub, a bankruptcy attorney with Dreier LLP, who isn't involved in the case. “If the vendors want to support this business, it may survive.”

Circuit City, the biggest electronics retailer in the U.S. until the mid-1990s, is losing market share to Best Buy Co. and Wal-Mart Stores Inc., while online retailers such as Amazon.com Inc. undercut its prices. The company owes $119million to Hewlett-Packard Co., the world's largest maker of personal computers, and $116 million to Samsung Electronics Co., the top maker of flat-panel displays, according to a filing.

Vendor concern that Circuit City wouldn't be able to pay its bills “escalated considerably” in the past week, the company said in its filing. It will attempt to reorganize either by shedding stores and finding a buyer for a slimmed-down version of itself, or by remaining as a stand-alone retailer, lawyers told U.S. Bankruptcy Court Judge Kevin Huennekens in Richmond, Va., where it's based. The company plans to stay in business while restructuring.

The company, founded in 1949 when Samuel Wurtzel opened the city's first retail television store, has lost more than $5 billion in stock-market value in two years. Circuit City shares fell 14 cents to 11 cents before the start of trading on the New York Stock Exchange.

A week earlier, Circuit City said it would trim about 20 percent of its 43,000-person workforce as it closes about a fifth of its U.S. stores, including one in Charlotte's University City area. The company announced another 700 job cuts in its store-support department Monday.

The company said Charlotte-based Bank of America Corp. arranged $1.1 billion in bankruptcy financing to replace a $1.3 billion line of credit.

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