Bankruptcy is a significant risk for businesses across all industries. While the specific circumstances leading to bankruptcy can vary, there are common underlying causes that many companies face. With extensive experience in corporate restructuring and turnaround management, my company has consulted on numerous projects. 

Drawing from these experiences, this article explores the five biggest reasons companies go bankrupt and provides insights into the lessons learned from these case studies.

1. Poor financial management

Poor financial management is one of the most prevalent reasons companies go bankrupt. This includes inadequate cash flow management, excessive debt and lack of financial planning.

Inadequate cash flow management. Cash flow is essential for day-to-day operations. Companies that fail to manage their cash flow effectively can quickly find themselves in financial trouble. For instance, one of our clients faced significant cash flow issues due to seasonal fluctuations in revenue. Without a robust cash flow management strategy, they struggled to cover their operational expenses during off-peak seasons.

Excessive debt. High levels of debt can be a burden, particularly if the company’s revenue projections fall short. This was a critical issue for another client of ours, which had accumulated substantial debt from its ambitious expansion plans. The debt burden became unsustainable when the expected increase in occupancy and revenue did not materialize.

Lack of financial planning. Without a comprehensive financial plan, businesses may fail to allocate resources efficiently, invest in growth opportunities and respond to market changes. Both the clients I mentioned above lacked detailed financial planning, which contributed to their financial instability.

2. Market changes and competition

Market dynamics are constantly evolving, and companies that fail to adapt can find themselves at a disadvantage. Increased competition, changing consumer preferences and disruptive technologies can all contribute to a company’s downfall.

Increased competition. New entrants or aggressive strategies from existing competitors can erode market share and profitability. One resort client faced intense competition from newer, more modern resorts in the area. Their inability to differentiate themselves and offer competitive amenities led to a decline in occupancy rates.

Changing consumer preferences. Consumer tastes and preferences can shift rapidly, impacting demand for products or services. For example, a hotel client struggled to attract younger travelers who preferred boutique hotels and vacation rental accommodations over traditional hotel stays. The client's failure to adapt to these changing preferences resulted in declining revenues.

3. Ineffective leadership and management

Leadership is crucial in steering a company through challenges and toward growth. Ineffective leadership can lead to poor decision-making, low employee morale and strategic missteps.

Poor decision-making. Leaders who lack the necessary experience or skills may make decisions that adversely impact the company. One client made several poor strategic decisions, including overexpansion without adequate market research and financial backing. These decisions stretched their resources thin and contributed to their financial troubles.

Low employee morale. A demotivated workforce can lead to decreased productivity, higher turnover and a negative company culture. For one client, low employee morale was a significant issue due to a lack of clear direction and support from management. This impacted the quality of service and guest satisfaction, further exacerbating their financial problems.

Strategic missteps, Strategic planning is essential for long-term success. Companies that lack a clear strategy or fail to execute their strategy effectively may struggle to achieve their goals. Several clients have lacked coherent strategies for growth and customer retention, leading to operational inefficiencies and financial strain.

4. Economic downturns

External economic factors can have a profound impact on businesses. Economic recessions, fluctuations in currency exchange rates and changes in interest rates can all contribute to financial distress.

Economic recessions. During economic downturns, consumer spending typically decreases, affecting revenue streams. Our resort client was particularly vulnerable to economic recessions, as discretionary spending on travel and leisure declined. This resulted in lower occupancy rates and revenue.

Fluctuations in currency exchange rates. For companies involved in international trade, currency exchange rate volatility can impact profitability. It can be a significant risk for many businesses with international operations.

Changes in interest rates. Rising interest rates can increase the cost of borrowing, affecting companies with high debt levels. One client faced increased interest payments on their substantial debt, which further strained their financial resources.

5. Legal issues and compliance failures

Legal challenges and compliance failures can drain resources and damage a company’s reputation. This includes lawsuits, regulatory fines and failure to adhere to industry standards.

Lawsuits. Litigation can be costly and time-consuming. Two clients faced legal challenges related to labor disputes and contract issues. These lawsuits diverted management’s attention and financial resources away from core operations.

Regulatory fines. Noncompliance with regulatory requirements can result in substantial fines and operational disruptions. While not a significant issue for the case studies discussed, regulatory compliance remains a critical concern for many businesses.

Failure to adhere to industry standards. Adhering to industry standards is crucial for maintaining customer trust and operational efficiency. Companies that cut corners or ignore these standards risk damaging their reputation and facing operational setbacks. Two of our clients struggled with maintaining industry standards, impacting their customer satisfaction and loyalty.

Conclusion

Understanding common reasons why companies go bankrupt can help businesses avoid these pitfalls and build a foundation for long-term success. Poor financial management, market changes and competition, ineffective leadership, economic downturns and legal issues are significant factors that can lead to bankruptcy. It is clear that proactive planning, effective leadership and strategic adaptability are essential for navigating these challenges. By addressing these critical areas, businesses can improve their resilience and increase their chances of success in a competitive market.

Related Content

• 10 Things You Should Know Before Filing for Bankruptcy
• 5 Questions You’ve Always Wanted to Ask About Bankruptcy
• When Is Bankruptcy the Right Move?

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Economists and professionals in the restructuring sector of business and real estate have been anticipating a distressed economy for the past 18 months. Thus far they have been wrong.

The public is just plain confused. Many people today don’t trust their politicians, their news sources and, surprisingly, not even their health care providers and professionals. This lack of trust, coupled with the pandemic-driven mandated way in which many employees work remotely, has caused many people to reassess their lives and the location from which they are willing to provide their services.

Many employees holding mid-and upper-level jobs will opt to permanently work remotely and never return to the office. This shift in the way people will work in the future will have a profound effect on many aspects of our economy, including the ability of landlords to keep commercial spaces leased.

Factors Influencing the Current Economy

COVID-19, the Delta, Omicron variants and now the highly contagious BA.2 variant have caused millions of workers to be unavailable for work, either remotely or otherwise. This has created a serious supply and distribution chain disruption. This problem is caused in part by manufacturers not being able to supply component products due to worker disruptions in factories. Add to this supply shortage the fact that personnel disruption in the transportation and delivery of products caused by COVID (i.e., the shortage of truck drivers) and we can clearly see the full picture of the disruption in the supply chain.

The threat of a substantial new round of tariffs, embargoes and other economic sanctions based on the political climate creates further risks of the U.S. becoming a distressed economy. In addition, there is a looming threat of high inflation. On the positive side, until recently the stock market and overall economy were generally clicking along at a solid and positive pace. The stock market doesn’t always accurately represent what is really going on in the economy, but recent market volatility may be a harbinger of troubled times ahead.

Will the accumulation of these factors ultimately cause the predicted distressed economy? No one knows for sure, but in analyzing the situation it may be instructive to look at the issues that have prevented the anticipated downturn.

Banks and Banking

Since the pandemic began, regulators have not been pressuring banks to take action with respect to defaulted loans. Historically, banks have been willing to “kick the can down the road” with respect to defaulted loans if they could do so without significantly impairing the accounting value of the loans with respect to the banks’ capital requirements. Regulators’ current attitudes have allowed the banks to do just this.

While the regulators’ laissez-faire attitude has had a definite positive short-term effect on the economy, at some point the regulators know that the effect of their actions will cause banks to have misleading financial statements.

It is not likely that regulators’ behaviors will change before the midterm elections later this year. At some point, however, they will have to stop allowing banks to avoid classifying loans. Otherwise, they risk allowing the banking system to continue to mispresent the value of its loan assets, with all the risks of that situation impacting the creditability and stability of the banking system.

It is my view that when the bank regulators change their position with respect to their treatment of defaulted loans, an anticipated tsunami of real estate foreclosures and bankruptcies will be upon us.

Additional Factors to Watch

Interest rates have historically had a substantial impact on the economy, especially the real estate sector.

The Feds have kept interest rates at almost zero to support the economy. Now, however, the specter of high inflation will almost certainly bring an end to near-zero interest rates. Annual inflation during 2022 is projected to be close to 7%. The Fed has already announced its intention to fight inflation by raising interest rates as early as in March. The issue is not whether interest rates will rise. Rather, it is by how much and when.

Rising interest rates hurt individuals in many ways:

• The most obvious is that they make housing less affordable. As interest rates rise fewer and fewer people will qualify to buy their own homes. Present homeowners with variable-rate mortgages will also be negatively impacted by interest rate increases.
• Rising interest rates also negatively impact the profits of businesses. This will impact the stock market, and therefore the value of stocks in individual IRAs and 401(k)s.
• Major shifts in the way people work will result in winners and losers. Time will tell how this will play out, but it is certainly looking like the economy will be disrupted.

Pressures on Businesses Pile Up

The re-emergence of COVID in the form of the current variants has all but destroyed the timetable for society’s return to normalcy. There is no reliable way to predict the effect of this re-emergence on the psyche of the country. It is predictable, however, that this re-emergence will negatively impact the economy, and will further delay a return to normalcy.

In fact, it is likely that normalcy, as it existed pre-pandemic, will never fully return. Trends like the shift of consumers primarily conducting their shopping online will have a negative effect on brick-and-mortar retail sales. The need for retail space seems poised to continue to decline even more than it has already. This problem has been accelerated by the pandemic.

Owners of shopping centers and commercial buildings are girding for the rash of vacancies that are most assuredly on the horizon. Individuals would be well advised to assume inflation and higher interest rates are on the near horizon and should act in any way possible to mitigate the harm to them from the looming dual threat. It is uncertain how federal, state, and local governments will react to the situation.

Uncertainty is the enemy of business, and it is clear we are facing uncertain, unpredictable times. The public’s general perception of all of this is yet to be seen. There is much distrust by the people of our nation. These factors will combine to create a perfect storm for companies and real estate investors to experience increasingly distressed financial times.

Steps to Consider

The best advice we can offer is for entities to deal with their distressed assets early on.

• For homeowners, interest rates will almost certainly increase in the near future. If a homeowner can refinance his or her mortgage to take advantage of the current low interest rates, that course of action should be considered.
• For consumers, accelerating the timing of any major purchases will make sense since the looming inflation will make the dollar worth less and less and make the effective cost of an item more expensive as time passes.
• Individuals should also consider exiting the stock market or minimizing their stock portfolios as soon as possible. Conversion of stock to cash is not a good strategy during a time when the value of the dollar will steadily decline. Conventional wisdom dictates that investment in precious metals, such as gold and silver, is a safe harbor. Thus, selling stock and buying gold and silver makes sense.
• Business owners should analyze their businesses based on the assumption that the near future will bring high inflation, high interest rates and a continuation of supply chain disruption. It is prudent to take steps to restructure the business in a way that will mitigate the damages if those future assumptions come to pass.

The general public will be looking at inflation and rising interest rates and will react accordingly. The earlier people and businesses accept and respond to these changes, and react appropriately, the more likely it is that Chapter 11 bankruptcies can be avoided. This not only increases the chances that companies can resolve their financial issues without resorting to bankruptcy, it often reduces the need for employee layoffs.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The COVID-19 pandemic in the U.S. officially turns one year old in March. But despite statewide lockdowns, business closures and widespread layoffs triggered by COVID, personal bankruptcy filings have not increased. Data through November from the American Bankruptcy Institute shows that filings were down 35% from 2019.

Robert Lawless, a pro­fessor at the University of Illinois who specializes in bankruptcy law, credits the economic stimulus enacted in early 2020, which included a moratorium on debt collections, for the decline in bankruptcy filings. Families are spending less and saving more, which is also slowing filings, he says. But this trend could change in the months ahead. In his research, Lawless has found that people tend to struggle financially for two to three years before deciding to file for bankruptcy. If you’re worried about not being able to dig yourself out from under your debts, here’s what you need to know.

Two options. Personal or consumer bankruptcy is separated into two sections, or chapters: Chapter 7 and Chapter 13 (business bankruptcies are known as Chapter 11). Chapter 7 bankruptcy, also known as a liquidation, is simpler to file and takes less time to complete. Most people opt for Chapter 7 because it allows you to wipe out most of your debts. It may require you to sell some of your assets, such as any non-retirement investments you own, to pay your creditors, although you may be able to keep your home. Chapter 13 is designed for people who have enough stable income to pay back some of their debts through a repayment plan. In a Chapter 13 bankruptcy, you can keep all of your property, including your house.

Although Chapter 7 provides the opportunity for a fresh start, it also takes a bigger toll on your assets. Plus, not everyone is eligible for Chapter 7. A lawyer will determine whether you qualify based on your state’s household income requirements, which vary considerably. For example, in California, a family of four with an annual gross (before tax) income of less than $101,315 qualifies for Chapter 7. In Arizona, a family of four must make less than $86,950.

Your attorney will also analyze other aspects of your financial life to determine whether Chapter 7 is the best route for you. Chapter 7 may not be best if you’re a homeowner who has a large amount of home equity (but cannot access it with a home-equity loan because of credit problems) because you could lose your home and the equity you’ve earned, says Gregory Wade, a bankruptcy attorney in Alexandria, Va. Each state has a homestead exemption that protects a certain amount of home equity in both Chapter 7 and Chapter 13 proceedings, but you could still lose equity in a forced sale. For example, in New York the maximum homestead exemption is $165,550, which means a couple with $250,000 in home equity could still lose up to $84,450 in a Chapter 7 bankruptcy.

Other exclusions. The home-equity exemption is just one of several exclusions designed to help consumers who file for bankruptcy start a new financial life. Money in your 401(k) plan and IRAs is protected from creditors, along with veteran’s benefits and pensions. For that reason, it’s not a good strategy to liquidate your retirement accounts to pay off debt, says John Colwell, president of the National Association of Consumer Bankruptcy Attorneys.

It’s also important to understand that some debts can’t be discharged in Chapter 7 bankruptcy or lowered if you file for Chapter 13. A person who files for bankruptcy would be able to discharge or lower payments for their credit card debt, medical debt and any back taxes owed to the Internal Revenue Service. But they would still be on the hook for student loan debt and any child or spousal support owed.

Before Congress revamped the bankruptcy laws in 2005, bankruptcy attorneys were able to negotiate with creditors to reduce interest rates and amounts owed on student loans. Now, though, you must prove that repaying student loans is an undue hardship—an extremely difficult standard to meet. (For more information on how to lower your student loans, go to kiplinger.com/kpf/studentloans.)

Court procedures and costs. When you file for bankruptcy, a court will appoint a trustee to represent the creditors, and all creditors will be treated equally. Expect to pay about $1,000 to file a Chapter 7 bankruptcy. The fees will vary depending on the complexity of your situation, how much debt is expected to be forgiven, where you live and your ability to pay the attorney fees. A Chapter 7 case typically takes about four months to a year or more to resolve. If something unexpected comes up, this can add to your costs and the amount of time it takes to close your case. For example, if you receive an inheritance within 180 days of your Chapter 7 filing, your case may be reopened and payments due to your creditors could be adjusted.

In Chapter 13, the fees of your case, which can be twice the amount for a Chapter 7 filing, are rolled into the payments. Your case is typically open for five years, and during that time you’ll make monthly payments. You can either write a check to the trustee or have the payments deducted from your paycheck. Your payment plan will be tailored to your financial circumstances. For example, if you expect your income to increase, you may be able to start off with a lower payment amount that will increase in six to eight months.

If your situation changes and you can’t afford to make the Chapter 13 payments, your plan can be modified to lower your payments or converted to Chapter 7. For example, if you (or your spouse) lose a job, you can ask the court to renegotiate your plan.

A bankruptcy filing stays on your credit report for 10 years, but the damage isn’t permanent. Although your credit score will take a hit at first, it will typically improve as the amount you owe is forgiven or lowered, Colwell says.

Go to the National Association of Consumer Bankruptcy Attorneys website (www.nacba.org) to search for a bankruptcy attorney near you. Most lawyers will allow a free consultation. If you can’t afford an attorney, you may be eligible for pro bono help through the Legal Services Corp. (www.lsc.gov).

When not to file

Even though bankruptcy is your legal right, not all situations are appropriate for this consumer reset.

For instance, suppose you have crushing student loan payments, but you’re single, you rent a home or apartment, you have a retirement account through work, and you have no other debts. Filing for bankruptcy will probably be a waste of time because it’s nearly impossible to discharge federal student loans in bankruptcy. Your best bet is to go to www.studentaid.gov and look for ways to lower your payments. If you have any private student loans, talk to your lender about lowering your interest rate and other options at your disposal.

Likewise, filing for bankruptcy may not be a good choice for retirees with high credit card or medical debt because income from pensions, Social Security and retirement accounts is off-limits to creditors. If all of your income comes from those sources, creditors can’t collect from you if they choose to sue you.

“I tell clients to not throw good money after bad,” says John Colwell, a bankruptcy attorney. “I know they want to stop the collection calls, but it’s just not worth it.”

Are bills piling up while you're out of work and stuck at home because of the COVID-19 pandemic? Are you thinking that filing for bankruptcy might be a good way to fix your financial situation? If so, you're not alone.

Bankruptcy is a legal process that can help people like you who can't pay their bills. It allows you to wipe out your debt and get a fresh start. Filing for bankruptcy will also put a halt to foreclosure or legal actions against you, and it stops creditors from calling and demanding payment. This "breathing space" is one of the most desired benefits of filing bankruptcy.

But there are a few things you should know before you take that giant step. Bankruptcy won't solve all your problems. You'll need help, and it can be a long (and costly) process. There are other important considerations, too. So, to help you figure out the best path for you, here are 10 things you should know before filing for bankruptcy.

If you choose to file bankruptcy, you have to decide which type is best for you based on your own situation—Chapter 7 or Chapter 13. Most bankruptcies for ordinary people are filed under these two chapters of the Bankruptcy Code. But choosing which type of bankruptcy to file is a complicated task, so you may want to hire an attorney to help you make the right decision.

Chapter 7 bankruptcy, also known as a liquidation, is simpler to file and takes less time to complete. Most people file under Chapter 7 because you can wipe out most of your general unsecured debts—like credit card and medical bills—without having to pay back the money you owe through a repayment plan. But some of your property will probably be sold by a trustee to pay your creditors, so Chapter 7 bankruptcy works best if you have little or no assets.

To qualify for a Chapter 7 bankruptcy, certain income requirements must be met. The "means test"—a formula used to keep high-wage earners from filing Chapter 7—will determine if your income is low enough for you to file under Chapter 7. People with a higher income who fail the means test can still file under Chapter 13, instead. The good news is that stimulus checks and other economic relief payments you receive from the government under the Coronavirus Aid, Relief and Economic Security (CARES) Act aren't considered income for this purpose. Use Form 122A-1 and Form 122A-2 to determine if you pass the "means test" and can file under Chapter 7.

Chapter 13 is for people with regular income from wages or salary who have enough money to pay their debts through a repayment plan. In a Chapter 13 bankruptcy, you can keep all your property, but you'll have to pay creditors the value of your "non-exempt" property such as your car or boat. Chapter 13 bankruptcy is a good option if you've fallen behind on a house or car payment and want to catch up on missed payments and keep the property.

(Note: Chapter 11 of the Bankruptcy Code, which is typically used to reorganize a business, can also be used by certain high-income people. However, a Chapter 11 case can continue in bankruptcy court for several years and should only be handled by a lawyer due to its complexity. For the vast majority of people, Chapter 7 or Chapter 13 bankruptcies are the way to go.)

Before filing for bankruptcy, you should consider other alternatives that aren't as drastic. Credit counseling, for example, might be a good option. In fact, before you can file bankruptcy, you must sign up for credit counseling from an approved credit counseling agency. The U.S. Department of Justice maintains a list of approved credit counseling agencies by state and judicial district on its website.

The CARES Act also suspends some federal foreclosure and eviction activity. There are new mortgage loan forbearance programs, too. These government initiatives might provide enough relief to keep your head above water until you can stabilize your overall financial situation, so be sure to check them out before filing for bankruptcy.

Another option is to take out a loan from your 401(k) plan instead of filing for bankruptcy. Generally, you can borrow up to half of your vested 401(k) balance, but no more than $50,000. If you're affected by the coronavirus outbreak, the CARES Act lets you borrow up to $100,000 or 100% of your account balance until September 23, 2020. However, most retirement experts recommend this option only as a last resort, so you should proceed with caution before going this route.

Even though it's tempting to do so, don't rack up new debt during the 70- to 90-day period before filing for bankruptcy. Your creditors can object to your request for a bankruptcy discharge on the basis of bankruptcy fraud.

The bankruptcy trustee may also try to recover money or property by setting aside certain transfers that you've made within 90 days before filing bankruptcy. The trustee can also undo security interests and other pre-filing transfers that weren't done properly. For example, transferring your property to a relative before filing bankruptcy can be treated as a fraudulent conveyance and undone by a trustee.

Don't drain your retirement account before filing bankruptcy, either. Most retirement funds are protected in bankruptcy. In fact, think carefully before using any of your retirement accounts to pay bills, since filing bankruptcy could potentially wipe out much of that debt anyway.

You won't necessarily be able to shake off all your debts in bankruptcy. For example, Congress has determined that certain types of debt—such as child support and taxes—can't be discharged in bankruptcy for public policy reasons. Student loans can also be difficult to discharge in bankruptcy unless you can prove there's an undue hardship.

Whether or not a debt can be eliminated in bankruptcy can also depend on whether the debt is secured or unsecured. Secured debts are backed by "collateral" property. Examples of secured debts include a mortgage or car loan. Generally, if you default on a secured loan, the creditor can take the "collateral" (e.g., your home or car). With an unsecured debt, there's no property specifically tied to the debt that a creditor can take if you don't pay what's owed. Examples of unsecured debts include credit card balances, medical bills, and certain personal loans.

In bankruptcy, secured creditors retain the right to collateral and, therefore, can still take the property connected to the loan. On the other hand, unsecured debt can be wiped out in bankruptcy. There's no collateral that the creditor can grab on to and repossess.

In addition to the loss of collateral property that secures a loan, you can keep or lose property depending on its status as "exempt" or "non-exempt" property. When you file for bankruptcy, you can keep a certain amount of exempt property, such as the equity in your home. However, property that isn't exempt can be sold by the bankruptcy trustee to pay off some or all your creditors.

The type of bankruptcy you choose also matters for purposes of determining what property you can keep. If you file for a Chapter 7 bankruptcy, you risk losing your non-exempt property to pay off your debts. If you file under Chapter 13 instead, you can keep all of your property, but you'll have to repay your creditors the value of any non-exempt property through a repayment plan that is administered by a trustee.

Every state has its own specific bankruptcy exemptions, so be sure to check the ones where you live. For example, in Virginia, you can exempt $5,000 plus $500 per dependent for residential property or personal property. If you're over 65 or a disabled veteran, that exemption goes up to $10,000. Starting in July 2020, Virginians will be able to exempt an additional $25,000 of real or personal property used as a principal residence.

Seventeen states, however, allow you to choose between the state exemptions and the federal ones created by Congress. The allowed amounts under each federal bankruptcy exemption are adjusted every three years. If you're married and filing jointly, you can double all the federal bankruptcy exemptions. That means, for instance, joint filers can claim a $50,300 federal exemption for their home, instead of the standard $25,150 exemption.

Bankruptcy isn't necessarily a quick solution to your financial problems. Chapter 7 bankruptcies can take as long as four to six months to complete.

Chapter 13 bankruptcies can take much longer. First, the bankruptcy plan must be approved by the bankruptcy court, which can take some time. Plus, while you're able to keep certain secured property (like a home or car) while you make payments under a Chapter 13 bankruptcy plan, the process can drag on for three to five years.

Since bankruptcy forms and schedules are complicated, you should seriously consider hiring an experienced bankruptcy attorney to complete them. You don't want your case to be dismissed because the forms are filled out incorrectly. Plus, the success rate for bankruptcy cases filed without an attorney is low.

If you choose not to hire an attorney, but misunderstand the law or make a mistake, it can affect your legal rights. You might, for example, end up losing property that you mistakenly thought you could keep. You can't count on bankruptcy court employees and judges, either—they aren't allowed to offer any legal advice.

To find a bankruptcy lawyer in your area, try the "Find an Attorney" tool on the National Association of Consumer Bankruptcy Attorneys' website.

Of course, the downside is that lawyers are expensive. Attorney fees can run you several hundred to several thousand dollars, depending on the complexity of your case and where you file. The average attorney fee for a Chapter 7 bankruptcy is $1,250. It's $3,000 for a Chapter 13 case. Plus, you typically have to pay attorney fees up front, especially in Chapter 7 cases.

You'll also have to pay filing fees to the bankruptcy court: $335 for a Chapter 7 case, and $310 for Chapter 13. Other court fees are possible, too. If you need to reopen a Chapter 7 case, it'll cost you $260 ($235 for a Chapter 13 case). There's a $298 fee to appeal a case. It's $47 to register a judgment from another district. And the list of potential court fees can go on and on.

Plus, the credit counseling and personal financial management course that you'll have to take before filing bankruptcy will cost an additional $20 to $100, depending on where you file bankruptcy.

The bankruptcy process requires complete honesty. You have to certify under penalty of perjury that your bankruptcy forms and schedules are complete and accurate as filed. Otherwise, you risk being prosecuted for bankruptcy fraud, which is a serious crime.

Don't try to hide property, either. There are severe criminal penalties for failure to disclose assets. The bankruptcy court can also dismiss your case for failure to disclose assets or debts.

If you don't want the world to know about your financial affairs, then bankruptcy might not be for you. Once you file for bankruptcy, all the forms you submitted are considered public records. So, anyone can view your paperwork. Your income, assets, and debts will be an open book for everyone to see.

You also have to attend a public meeting of creditors after you file bankruptcy. At that meeting, a bankruptcy trustee will ask you questions about your situation in a public forum. This meeting doesn't take place in bankruptcy court, either. For example, in Virginia, the meeting of creditors is held in the Alexandria office of the U.S. Trustee.

(Note that the CARES Act allows the required meeting of creditors to be conducted by telephone or other alternate means because of the COVID-19 pandemic.)

Bankruptcy sticks with you for a long time. For example, it will stay on your credit report for up to 10 years. As a result, you'll probably have a harder time getting a loan in the future because of a bankruptcy filing.

Also keep in mind that you're limited on the number of times you can file bankruptcy. Chapter 7 bankruptcy can be filed once every eight years, while Chapter 13 can be filed every six years. So, if you do file for bankruptcy, make sure you do it right because it will be a while before you get another crack at it.

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Retailers across the country are working diligently to ensure that their businesses aren't the next victim of the coronavirus. The e-commerce revolution might have brought the industry to its knees, but it seems like COVID-19 is ready to deal the final blow – bankruptcy – to several retail stocks.

On April 24, reports surfaced that Neiman Marcus could be filing for Chapter 11 bankruptcy at any moment. The department store, which reportedly was in talks with lenders to obtain $600 million in emergency funding to ensure it gets through bankruptcy proceeds, was suffering under $4 billion in debt long before the coronavirus exerted its pressure on the industry.

However, not everyone is keen on the department store to file. Mudrick Capital Management LP has gone so far as providing Neiman Marcus with a proposal to supply $700 million in debtor-in-possession financing. However, its funding comes with a stipulation that Neiman Marcus must find a buyer. That's no easy task, given that all 43 of its stores have been closed since March 17, and the retailer has had to furlough more than 14,000 employees. Few buyers want to take on that kind of responsibility.

Neiman Marcus is hardly alone in its struggles.

Here, we look at 10 retail stocks that find themselves in considerable peril thanks to the coronavirus' toll on the industry. In some cases, the companies have already been linked to potential bankruptcy filings. In others, credit ratings agencies have reported serious concerns about these companies' debt. And in still others, their financial positions are signaling danger via an ominous "Altman Z-score," a metric measuring a company's credit strength to determine the likelihood of bankruptcy. (More on how that works in a minute.)

None of this is a guarantee that any of these companies will indeed go bankrupt – lesser companies have been saved from worse, whether it's on their own merits or through plans like the one proposed by Mudrick Capital. However, each of these retail stocks is extremely distressed thanks to the COVID-19 threat and face a heightened risk of bankruptcy or other drastic measures as a result. For that reason, investors should keep their distance.

Data is as of April 27. Altman Z-scores provided by Gurufocus.com.

• Market value: $13.4 million
• Altman Z-score: 0.58

Ascena Retail (ASNA, $1.50) – the owners of Ann Taylor, LOFT, Lane Bryant, Justice and other retail brands – operates roughly 2,800 stores in the U.S. and Canada.

The once highflying retail conglomerate isn't new to the topic of bankruptcy. In August 2019, reports began to circulate that Ascena's lenders were getting nervous about its outstanding debt, which at the time stood at more than $1.4 billion. ASNA also was said to be meeting with bankruptcy law firms.

Ascena had been battling with landlords over its Dressbarn banner and more than $302 million rent payments. At one point, Fox Business reported, Ascena insinuated it would file for Chapter 11 bankruptcy to skip out on the debt. In February 2020, Ascena completed its wind-down of Dressbarn, resulting in the closure of more than 650 stores and the elimination of the debt.

S&P Global Ratings lowered its debt rating on Ascena from CCC to "selective default" on March 12. They did so after Ascena repurchased $122 million of its 2022 term loan facility below par – a move the ratings' agency considered distressed. On March 16, they raised their rating to CCC-, arguing that the risk of conventional default (which could benefit bondholders by comparison) has increased due to the coronavirus and its high level of debt.

Still, ASNA is hardly in a position of strength. "The negative outlook reflects our view that the company will likely pursue a restructuring in the next six months amid weak operating performance and industry challenges," S&P Global Ratings writes.

Then there's Ascena's low Altman Z-score of 0.58. Altman Z-score is intended to assess a company's financial stability. It takes several financial numbers from a balance sheet and income statement and turns them into a score. Anything above 2.99 means a company is unlikely to face bankruptcy within the next 24 months. Anything below 1.81 means a company is in distress and could go bankrupt within 24 months. And everything in between is a gray zone, albeit one signaling the possibility of financial distress.

Ascena did respond to the original downgrade on March 12, saying it wasn't considering bankruptcy and that it was in full compliance with regard to all of its obligations. Further, ASNA believes it has sufficient liquidity with $600 million in cash and what's available on its revolving credit facility.

Still, this is a company that suffered a $125.8 million operating loss through the first six months of its fiscal year – a period that ended Feb. 1, 2020. And things have almost certainly taken a turn for the worse since then.

• Market value: $80.7 million
• Altman Z-score: 0.89

A bankruptcy filing by JCPenney (JCP, $0.27), if recent reports are accurate, could be just days from happening.

On April 24, a Wall Street Journal report claimed the retailer is negotiating with its current lenders for a debtor-in-possession loan that would allow it to continue to operate during potential bankruptcy proceedings. The amount of the loan could be up to $1 billion.

JCPenney finished its fiscal year ended January with net debt of $3.33 billion, down considerably from its 2015 net debt of $3.87 billion. However, in that same time, revenues have fallen by 15% to $10.7 billion. It also has lost money on a non-GAAP (generally accepted accounting principles) basis in three of the past four years.

On April 15, JCPenney failed to pay $12 million in interest on its 6.375% senior notes due in 2036. Its lenders gave it a 15-day extension to make the payment. If the company fails to come through, the lenders can force repayment of the $388 million in notes, 16 years before they come due.

Analysts were concerned about JCPenney prior to the coronavirus. Now that unemployment is expected to be higher than normal for months, if not years, it is going to be very difficult for the department store to refinance its debt at reasonable interest rates.

"There's a good chance they can survive, but this is no layup," Customer Growth Partners' Craig Johnson recently told CNN. "This is going to be a three-pointer deep in the corner with time running out."

• Market value: $3.2 billion
• Altman Z-score: 1.30

L Brands (LB, $12.21) is a tale of two businesses. You've got the struggling Victoria's Secret brand, which can't seem to do anything right these days. And you've got Bath & Body Works, which can't seem to do anything wrong.

Investors thought the company solved its problems in February by selling 55% of its lingerie business to Sycamore Partners, a private equity firm that also owns Talbots and several other retailers. L Brands received $525 million for giving up majority control. It also would retain 45% of what would become a privately held company under Sycamore management.

Not so fast.

On April 22, L Brands announced that Sycamore sent a notice to the company expressing that it intended to terminate its agreement to buy 55% of Victoria's Secret. It went as far as asking the Chancery Court of Delaware to render the agreement null and void because L Brands closed stores and laid off employees, violating the agreement.

L Brands filed a lawsuit of its own on April 23, arguing that Sycamore's move was nothing more than "buyer's remorse" and an invalid reason for terminating the agreement. L Brands further argues that in recent weeks, Sycamore had tried to lower the acquisition price.

Several analysts believe the store closures by L Brands were necessary and within the company's rights amid the COVID-19 pandemic. However, Alon Kapen, a lawyer with Farrell Fritz, a Long Island law firm, suggested to Retail Dive that LB had an obligation to speak with Sycamore about these closures.

The outcome could determine the future financial health of L Brands. Although it has a market capitalization of more than $3 billion, it currently has a Z-Score of 1.30, putting it well within distressed territory.

• Market value: $828.3 million
• Altman Z-score: 1.77

Rite Aid (RAD, $15.65) finished fiscal 2020 (ended Feb. 29) with revenues of $21.9 billion, which was 1.3% higher than a year earlier. The bottom line was even more improved, with a net loss from continuing operations of $469.2 million – 30% thinner than the year-ago loss. On an adjusted basis, Rite Aid made $8 million from its continuing operations in 2020, flipping from a loss of $3.1 million a year ago once certain one-time items were backed out.

Also fortunate for shareholders: Rite Aid's 2,400-plus pharmacies remain open during the coronavirus, ensuring the sales keep rolling in. The company's revenue outlook for fiscal 2021 is expected to be between $22.5 billion and $22.9 billion, with Retail Pharmacy same-store sales growth of 1.5% to 2.5%.

Rite Aid expects to generate adjusted earnings in 2020 of anywhere from a loss of 22 cents to a profit of 19 cents. However, if social distancing continues for an extended period, it could result in significantly lower front-end sales and prescriptions. That would be terrible news for CEO Heyward Donigan, who was brought in by the board in August 2019 to take the company in a different direction.

Donigan's turnaround plan focuses on becoming the dominant mid-market pharmacy benefits manager (PBM), leveraging its more than 6,400 pharmacists to provide customers with whole-health and wellness solutions, and revitalizing Rite Aid's retail and digital experience.

Rite Aid's biggest problem right now is how much time it has to execute on these plans. As of the end of February, RAD had $3.1 billion in long-term debt at an average interest rate of 5.7%. In 2020, it paid out $229.7 million in interest on its debt. That debt load makes it virtually impossible for Rite Aid to make money on a GAAP basis. Several analysts include RAD among their stocks to sell as a result.

• Market value: $2.1 billion
• Altman Z-score: 1.80

On April 1, Fitch Ratings downgraded Capri Holdings' (CPRI, $14.74) debt from BBB- to BB+, moving it from investment-grade to junk-bond status. Fitch also said its outlook for Capri is negative.

It seems the owner of higher-end brands such as Michael Kors, Versace and Jimmy Choo is suffering from the coronavirus like most other retailers.

In early February, Capri cut its annual revenue outlook from $5.8 billion to $5.65 billion. Since then, North American retail has struggled as stay-at-home orders filtered through the U.S. and Canada.

Fitch projects a global slowdown in consumer discretionary spending could extend into 2021. As a result, it projects that Capri's revenues could fall by 25% in 2021 to $4.5 billion and another 10% in 2022. The ratings agency does believe Capri has enough liquidity to get it through the coronavirus and decline in consumer discretionary spending.

Capri provided investors with a COVID-19 update on April 6. The retailer said it had $900 million in cash and cash equivalents on its balance sheet as of April 1, and that it had completely drawn down the remaining $300 million of its $1 billion revolving credit facility.

Capri, which expects its stores in North America and Europe to be closed until June 1, has moved to drastically cut expenses. It has reduced director pay; CEO John Idol will forgo his salary for fiscal 2021, which ends March 31. On April 11, Capri furloughed all 7,000 of its retail store employees. CPRI also is reducing its capital expenditures and inventory purchases for the year.

For now, Capri isn't an immediate-term bankruptcy threat. Fitch believes Capri can weather the storm, and indeed it might based on current assumptions. However, if a lack of consumer discretionary spending carries well into 2021, that outlook could change.

• Market value: $2.9 billion
• Altman Z-score: 1.96

Gap's (GPS, $8.26) Z-score has yet to fall below the pivotal 1.81 level that would an indicate an imminent bankruptcy. However, the April 23 COVID-19 update it filed with the SEC was hardly reassuring.

Not only did Gap say that its cash and expected cash "may not be sufficient to fund our operations," but the company also reported it had burned through roughly $1 billion in cash since the beginning of February.

The same day, Gap announced the pricing of $2.25 billion in senior secured notes that pay investors between 8.375% and 8.875% and mature between 2023 and 2027. The company will use the proceeds from the sale of junk bonds to refinance notes due in 2021; those notes had a much more reasonable 5.95% interest rate attached.

Gap also said that starting in April, it was suspending monthly rent payments worth $115 million for its stores in North America. It currently is negotiating with landlords to get deferments and reductions in its rent during the coronavirus. It also wants to renegotiate future rents downward or terminate leases where a financial arrangement isn't possible.

The Gap expects to finish the end of its fiscal quarter on May 2 with as little as $750 million in cash despite furloughing approximately 80,000 employees, cutting orders for summer and fall, and drawing down its entire $500 million revolving credit facility at the end of March.

Considering Gap's overall sales were deteriorating before the coronavirus shut non-essential businesses, it's possible that the company's financial condition could result in further drastic measures later in 2020.

• Market value: $62.6 million
• Altman Z-score: 2.00

GNC Holdings (GNC, $0.67) has gone through considerable turmoil in recent years. The coronavirus isn't making things any easier.

In mid-2019, GNC announced that it planned on closing 700 to 900 stores by the end of 2020. Most of the store closures will be mall locations that have suffered from reduced traffic in recent years. Approximately 28% of its retail footprint is in mall-based locations. GNC ended up closing 851 locations in 2019.

In March 2020, the company announced that it didn't expect to generate enough cash from its operations to be able to pay off debt maturing in August 2020 and early in 2021. As a result, S&P Global Ratings lowered the company's debt from CCC+ to CC, well into junk status.

"We believe conditions for GNC are deteriorating substantially due to the coronavirus pandemic, the anticipated macroeconomic downturn, and the limited access to capital markets," S&P Global Ratings analyst Khaled Lahlo said in a press release.

GNC reported its fourth-quarter and fiscal 2019 results on March 24. Sales fell 12% to $2.1 billion, while adjusted income for the year increased by 38%, to $40.0 million. One of the few bright points was GNC's e-commerce business, which accounted for 8.8% of its overall sales – 90 basis points higher than in 2018. (A basis point is one one-hundredth of a percentage point.) In the fourth quarter, e-commerce revenues accounted for 11.5% of sales in the U.S. and Canada, 220 basis points higher than a year earlier. Overall, in terms of actual dollars, however, e-commerce sales actually fell 2.1% in 2019 to $182.0 million.

GNC shares have lost 73% of their value year-to-date. A continued downturn and a model still heavily reliant on brick-and-mortar sales could continue to wear on the health retailer.

• Market value: $1.7 billion
• Altman Z-score: 2.00

When Macy's (M, $6.08) CEO Terry Lundgren stepped down at the end of March 2017, the retailer had just completed a fiscal year in which it generated $25.8 billion in sales and $1.3 billion in operating profits. That wasn't anything near the company's 2014 fiscal year ($2.8 billion in operating profits on $28.1 billion in sales), but it was still very positive.

Macy's finished its most recent fiscal year with net sales of $24.6 billion and operating income of just $970 million. The decline is discouraging, but what's really giving shareholders a hard time is speculation that the coronavirus could see Macy's go broke.

On April 18, Cowen analysts estimated that Macy's has only four months of cash left. On April 21, CNBC, citing people familiar with the matter, reported that the department store was looking to raise as much as $5 billion in debt to ward off bankruptcy as a result of COVID-19.

Should the crisis carry on into the fall, it's quite possible that the department store would be forced to file for bankruptcy to ensure its stores could remain open. That could give Macy's time to sell off real estate and possibly its Bluemercury luxury skin-care brand to pay down its growing level of debt.

Macy's had $3.45 billion in net debt at the end of January. The addition of $5 billion in cash would give it more time. But if its business continues to deteriorate, Macy's Z-score, which indicates whether it might go bankrupt in the next two years, surely would move much lower.

• Market value: $386.4 million
• Altman Z-score: 2.08

Children's specialty apparel retailer Children's Place (PLCE, $29.08) looks like it's in a wounded but at least survivable position with a Z-score of 2.08. Still, the risks here are noteworthy.

Children's Place finished its fourth quarter and fiscal year ended Feb. 1 with $68 million in cash and no long-term debt. However, PLCE did have $122 million in current lease liabilities and $312 million in long-term lease liabilities. With the Gap suspending rent payments, it's clear retailers of all sizes are having a problem meeting the monthly commitment.

In addition, Children's Place has $171 million undrawn of its $350 million revolving credit facility. Plus, it plans to execute the accordion option on its revolver to access another $50 million in cash.

While $289 million might seem like a lot of cash to fight the economic downturn caused by the coronavirus, the company said approximately 65% of the retailer's sales between February and April were expected to be in-store revenue. Of that, March and April normally account for the lion's share of Q1 sales. Based on the assumption above, as well as PLCE's $412 million in Q1 2019 revenue, it will be lucky to generate 60% of last year's results.

Add in that many consumers either won't want to venture out into physical retail spaces, while others won't have the money because of job losses, at least in May and quite possibly June, and the company's second quarter could be a lost cause as well.

Bankruptcy is a long shot here, but possible nonetheless. More to the point for investors, PLCE still faces additional downside risk should the economy's "re-opening" produce less brisk results than hoped.

• Market value: $375.1 million
• Altman Z-score: 2.45

Most retailers are busy fighting COVID-19. On that front, GameStop (GME, $5.67) is no different. However, it has the added issue of dealing with activist investor Hestia Capital, which owns 7.2% of the world's largest video game retailer.

On April 27, Hestia Capital sent a letter to shareholders outlining some of the changes it would like to see the company enact as part of delivering value for shareholders. A big concern: Most of the directors come from traditional retail backgrounds and don't have the tech savvy necessary for GameStop to be successful.

"The Board remains too retail-focused and continues to unsuccessfully apply traditional retail strategies to address the Company's problems. These efforts have failed for the past 5+ years because the gaming industry has evolved to become more community-based and digitally oriented," the letter to shareholders stated. "Trying to apply traditional retail strategies to compete with Amazon, Wal-Mart, Best Buy, and others is doomed to fail."

One of the activist's points in its letter to shareholders addresses the company's long-term liquidity. Specifically, it has $420 million in 6.75% senior notes due in March 2021 – notes that Moody's has well down the junk ladder at Caa2. In 2019, GameStop repurchased almost $54 million of these notes at prices between 99.6% and 101.5% of par value.

Hestia Capital believes that given the notes have been trading at 69 cents on the dollar, now is the time to pay down its debt.

GameStop recently issued a COVID-19 update saying it had $772 million in cash available to it as of April 4, which means it has net cash (so, factoring in debt) of approximately $352 million. It's not an imminent threat to go bankrupt tomorrow.

However, given that one-third of GameStop's stores in the U.S. remain closed and two-thirds available for curbside pickup only, it wouldn't be prudent to pay down debt at this stage of the reopening process. And given that the company's top and bottom lines have withered for years amid video gaming's aggressive push to digital sales, bankruptcy still is a longer-term possibility if GameStop can't figure out an effective turnaround plan.

Just when it looked like the so-called retail apocalypse was all the way in the rearview mirror, it managed to claim another victim. A long-beleaguered Sears Holdings (SHLDQ, $0.40) finally was forced to file for Chapter 11 bankruptcy protection on Oct. 15, 2018. That vindicated numerous doubters who were surprised Sears hung on as long as it did.

But the decision is hardly an event. That is, the decision to file bankruptcy sets off a chain of open-ended processes that might let the company regroup on firmer footing.

Retail bankruptcies such as Sears’ are unique in that most ultimately attempt to remain operational during the restructuring process. That’s because restarting such a business can often be far more expensive and difficult than simply keeping them up and running … even if the operation is bleeding money as-is.

Here are 10 steps that most bankrupt retail outfits – including Sears – typically will follow once it’s clear they can’t earn their way out of insolvency. The sequence of events isn’t necessarily set in stone, but it largely has to unfurl in a way that’s close to this order.

Before any resolution can be achieved, the organization in question has to answer one crucial question:

Is it time to call it quits for good, or can the business be made viable again if a wide swath of its obligation are wiped away?

If it’s the former, the seventh chapter of the U.S. bankruptcy code lays out the groundwork for an outright liquidation of all the company’s assets, as well as equitable distribution of whatever funds can be raised. If it’s the latter, the company follows the rules according to the 11th chapter, which facilitate negotiations to reduce legal obligations.

Most retail bankruptcies are Chapter 11 filings, as the end-goal is to resume business with at least a less burdensome debt load.

Once a company decides it can’t continue to operate as-is and asks the nation’s judicial system to step in, it’s no longer allowed to operate without close supervision. The courts assign a U.S. trustee to the case to ensure that organization operates above board during a hectic time that could lead to insider abuse and self-serving decisions.

In the case of Chapter 7 filings, an impartial and disinterested third party is appointed as a case trustee, to fairly and fully liquidate assets. Case trustees are far less common in Chapter 11 filings, largely because the company and the creditors all want the same thing, and typically will work together to rekindle viability.

In both cases, however, the court-appointed U.S. trustee is tasked with oversight of the process, including the appointment of the third-party case trustee.

In cases where a retailer will be shutting down at least some stores, all that inventory must go somewhere.

The easiest and most cost-effective solution is to simply sell it right where it is, even if that means selling it at less than cost. Most organizations simply don’t have the room or capacity to redistribute all that merchandise.

Still, stores must be emptied.

The next stage in the process is an obvious and painful one. If a retail site is being shut down for good, all those workers are laid off if they can’t be relocated. And most can’t be relocated.

They’re generally eligible for unemployment benefits, though that’s neither a permanent nor an adequate solution. In some cases, employees also may receive a severance package. However, if an organization has been struggling to turn a profit for years, it may have little or nothing to offer workers it must let go.

All businesses own some modicum of equipment and furniture necessary to operate, including retailers. But retailers also boast one type of equipment that can become a massive headache once they’re no longer needed: racks, shelves and display stands.

There’s little to no market for such property, particularly when it’s used and difficult to transport. Much of it ultimately is taken to a landfill, or sold for pennies on the dollar to specialists that handle secondhand fixtures.

The buildings themselves are either turned back over to the landlord, or when owned, sold to the highest bidder. In today’s saturated retail environments, retail real estate doesn’t command much of a premium except in locations that are still highly trafficked.

Ivan Friedman, head of RCS Real Estate Advisors, recently told Business of Fashion, “Everybody is closing stores … everybody is getting lower rents when they do their renewals.”

While increasingly rare, some long-lived retailers still offer pensions to employees. Sears is – or was, anyway – one of them. It was the company’s relatively hefty pension expenses, in fact, that helped lead the company to its newly filed Chapter 11 bankruptcy.

In these rare cases, retired employees aren’t out of luck. Almost all pensions pay for what is essentially insurance offered by a pension guarantor, which becomes responsible for ensuring pension payments continue to be made if the company in question no longer can afford to do so.

That’s almost assuredly going to be the case with Sears, which had paid Pension Benefit Guaranty Corp. for this sort of protection for years. PBGC said in a statement about Sears’ Chapter 11 decision, “If circumstances require, we are prepared to step in and provide PBGC-guaranteed benefits.”

Selling off store inventories and office equipment doesn’t make a terribly big dent in what’s owed to a bankrupt retailer’s bondholders and lenders, but every bit helps. The bulk of any payback funding, however, comes from sales of real estate and sheer cost-savings.

Payroll is often a retailer’s biggest operating expense, but if there are no employees (or other bills) to pay, savings can be significant. Even a disappointing selling price for a storefront can still fetch millions of dollars.

However, in the case of Chapter 7 bankruptcies, it’s not just a matter of divvying up the drummed-up cash. There are different degrees of loans made to a company. Some may be secured by collateral, while other loans are unsecured. The bankruptcy court determines what’s most fair in light of an organization’s unique debt structure. Every creditor, though, usually ends up losing money one way or another.

Chapter 11 filings more or less work the same way. But in most of those cases where the company intends to continue operating, bondholders accept a reduced payback and/or adjust the value of their debt holdings to a level that a struggling company can afford to service.

It’s perhaps the most critical piece of the Chapter 11 process: rebuilding the business so the company doesn’t find itself back in a sea of insolvency just a couple of years down the road.

Most bankruptcies practically require not just the replacement of management, but an all-new approach to doing business. Investors have already been burned, be they bondholders or stockholders. If the restructured company looks, feels and acts too much like the old one, nobody’s going to buy in.

Too many backers and investors remember how Toys R Us, RadioShack and Brookstone are just a handful of names in the business that were forced to file bankruptcy twice (almost back-to-back) because the turnaround plan was never truly sound.

A retailer needs to convince more than potential shareholders and bond buyers that it’s completely out of trouble. Landlords and merchandise suppliers who ended up losing money with a prior iteration of an organization may be wary of partnering up with the new version after being burned.

As evidence of this growing trend, Bloomberg reported in July, “Many landlords in America are pushing to eliminate or restrict the escape clauses in the wake of mass department-store closings, causing less flexibility for the remaining tenants.”

Struggling companies that intend to rebuild must be patient and methodical, though, because they need real estate and merchandise more than vendors and landlords need them. But they don’t all have the luxury of time.

Owning equity in a company – any company – is risky, but the potential rewards are commensurate. This is where the most growth can occur for an investor.

But like any ownership, investors stand last in line with bankruptcies.

For Chapter 7 filings, that effectively means there’s nothing left to divvy up. Chapter 11 bankruptcies usually aren’t any easier on shareholders, though. Bondholders, creditors and vendors always get paid first, and they’re usually settling for pennies on the dollar. Most bankruptcies completely wipe out shareholders.

Even in the rare cases where a retailer’s existing stock isn’t cancelled and new stock is issued to investors willing to supply fresh funding, those shares tend to remain worthless for a long time.

Again, no two bankruptcies are ever quite the same, and retailing is anything but an exception to that norm. Indeed, Chapter 11 bankruptcies are an ever-moving target, as it’s never quite clear how well the company will be able to convince consumers to continue shopping at that company’s locations.

Two things are certain about restructuring or outright closing store chains, though: It’s always a proverbial circus, and it’s always ugly.

When you can't possibly pay what you owe and informal arrangements with creditors have failed, it might be time to think about declaring bankruptcy.

Remember, bankruptcy is a last-ditch solution, and it's not a do-it-yourself proposition; you'll want to hire an attorney with expertise in bankruptcy to help you make important decisions that will affect the outcome.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 makes declaring bankruptcy more difficult and requires increased paperwork, more stringent limitations, and financial counseling from an approved nonprofit credit counseling service.

What kind for you? Individuals in tough financial straits typically can declare one of three types of bankruptcy: Chapter 7, Chapter 11, or Chapter 13.

In Chapter 7, known as straight bankruptcy, you give up your property to the court, which will divide it among your creditors, and ask the court to erase your debts. (The court can't repossess certain exempt property, such as a certain amount of your equity in a residence or a motor vehicle.)

To qualify for Chapter 7 bankruptcy, you must pass a "means test" involving an analysis of your income and expenses. If the test results show that your discretionary income is below $100 a month, you can file for Chapter 7. If discretionary income is over $100, you may have to file Chapter 13.

A provision of the new law bars filers who owe more than about $1.2 million from filing under Chapter 13, but allows them into Chapter 11, which is usually meant for businesses. Because Chapter 11 is designed to keep a business going, it allows the debtor to retain income earned after the bankruptcy filing while using only assets he had at the time of filing to pay past debts. For more information on different types of bankruptcy, see Bankruptcy Basics on the United States Courts website.

If you find yourself considering filing for bankruptcy, think again. You shouldn't take this step before you have exhausted the options outlined above. A bankruptcy stays in your credit file for seven to ten years. You may be able to qualify for new credit during that time, but not on terms you'll like.

Just because you’ve attained wealth doesn’t mean you’ll keep it. In 2011, the number of millionaire households in the U.S. dropped by nearly 2.5% (from 5,263,000 in 2010 to 5,134,000 in 2011), according to The Boston Consulting Group, a global management consulting firm.

Even the richest of the rich aren’t immune from sudden -- and complete -- plunges in net worth. The big names we’ve rounded up here, from Olympic gold medalist Dorothy Hamill to financial businessman Bill Bartmann, all filed for bankruptcy at one point, falling into the same money-draining traps that can cost us all: poor budgeting, loose spending habits, failed business ventures, even extending too much financial support to friends and family. They’ve managed to rebuild their professional and financial lives. Here’s how they did it.

EDITOR’S NOTE: A previous version of this slideshow included a slide, based on a respected news source, reporting that the musician Elton John had filed for bankruptcy in 2002. Although that claim circulates widely on the Web, we have since learned that it is false. Elton John has not filed for bankruptcy. We regret the error.

We attempted to contact all of the people mentioned for an interview; however, some declined to comment.

Who he is: Entrepreneur, author, founder and former CEO of the debt-collection firm Commercial Financial Services (CFS)

How he lost his money: In 1998, Bartmann, a one-time billionaire, was forced to shut down CFS and file for bankruptcy. He and his business partner, Jay Jones, were charged with accounting fraud and conspiracy for allegedly inflating sales reports to ratings agencies. “We were doing so well, and then one afternoon it was all over,” Bartmann told Kiplinger. Jones was convicted; Bartmann was cleared of any wrongdoing.

How he came back: Wrote books about his lessons learned.

After his acquittal in 2003, he slowly started to piece his life back together. In 2005, he wrote his first book, “Billionaire Secrets to Success.” Bartmann followed up with “Bailout Riches” in 2009, which became a bestseller on Amazon. In July 2010, he returned to the debt-collection business and launched a new version of his former company, calling it CFS II.

CFS II took in $10 million in revenue last year. When asked how his previous ordeal helped shape how he runs CFS II, Bartmann told Kiplinger, “I’d be remiss in my duties if I assumed everyone is doing a great job . . . Don’t walk away from your ability to supervise a relationship just because you like someone as a person.”

Who she is: Olympic gold medal figure skater and television personality

How she lost her money: At the height of her career in the 1980s, Hamill was reportedly raking in $1 million a year to skate in prime-time TV specials. However, after years of excessive spending, which included a weakness for expensive jewelry, and a series of bad investments, including the purchase of the fledgling Ice Capades franchise, Hamill had to file for bankruptcy in 1996.

How she came back: Parlayed her strong brand into related new opportunities.

Hamill toured the professional ice skating circuit for several years to help pay off her debt. She also returned to television, appearing in the 1998 NBC special “The Christmas Angel: A Story on Ice.” In October 2007, her autobiography, “A Skating Life: My Story,” hit bookstores and made the New York Times bestseller list. That same year, she appeared in “Blades of Glory,” an ice skating parody film starring comedian Will Ferrell. Recently, Hamill has found herself back in the spotlight as a contestant on season 16 of ABC’s “Dancing With the Stars.” She also continues to perform in professional ice skating shows and is currently on tour with “Stars on Ice.”

Who he is: Grammy award-winning rap artist and television personality

How he lost his money: At the height of his fame in the late 1980s and early 1990s, Hammer’s net worth was valued at around $33 million. However, he was reportedly spending $500,000 a month on his 200-person staff. Other costly expenses included the mortgage on his $10 million mansion, the maintenance and upkeep on 17 luxury cars, and the acquisition and care of 21 racehorses. When Hammer eventually filed chapter 11 in 1996, he claimed $1 million in assets and $10 million in debt.

How he came back: Reinvented himself.

After his superstar status faded, Hammer became an entrepreneur. He created a handful of record labels, has dabbled in tech start-ups and is currently the CEO of Alchemist Management, a Los Angeles-based athlete management and marketing firm specializing in mixed-martial-arts fighters. Hammer, who has more than three million followers on Twitter, often lectures about social media and marketing at business schools, including Stanford University and Harvard University. In 2009, he produced his own reality TV show on A&E, called “Hammertime,” and he performed at the 2012 American Music Awards, as well as on ABC’s “New Year’s Rocking Eve 2013.”

Who he is: Co-founder of Curves International

How he lost his money: In 1976, Heavin dropped out of college at age 20 and started his first gym, Women’s World of Fitness. Success came right away, and he was a millionaire by age 25. However, Heavin’s aggressive expansion plans didn’t add up. He added amenities to the gym, such as tanning beds and swimming pools, that were expensive to maintain. “At 25, it was all about me, and that’s a foundation for disaster,” Heavin told Kiplinger. By 1986, overhead costs began to exceed the amount the company was bringing in from new memberships, and at age 30 his business went bankrupt.

How he came back: Tried again with the same business idea, applying lessons learned from his initial failure.

Marrying his future business partner, Diane, gave Heavin the motivation he needed to give entrepreneurship a second try. In 1992, the couple opened the first Curves, a women-only gym, in Harlingen, Texas. Heavin once again found immediate success. In 1995, the pair turned the business into a franchise; today, there are 10,000 Curves locations across the world. In 2000, he released his first book, “Permanent Results without Permanent Dieting: The Curves for Women Weight Loss Method,” and it became a New York Times bestseller. On finding success a second time around, Heavin says, “I had to lose everything I owned before I was capable of running a business the right way.” Today, he’s a billionaire.

Read more about Gary Heavin and how he became an entrepreneur in our slide show 5 Midlife Millionaires.

Who he is: Emmy-winning broadcast journalist and former host of CNN’s “Larry King Live”

How he lost his money: During his early days in radio in the 1960s, King’s low-level salary didn’t support his big spending habits, including a fondness for gambling. By 1978, he had to file for bankruptcy after accumulating more than $350,000 in debt.

How he came back: Capitalized on early opportunities in an emerging industry -- cable TV.

The same year that he declared bankruptcy, King was hired by WIOD Radio in Miami to host a national nighttime talk show that eventually caught the attention of CNN founder Ted Turner. In 1985, Turner hired him to host his own television show, “Larry King Live.” King would host the cable show for 25 years, making as much as $10 million a year before signing off for good in 2010.

Who he is: Entrepreneur and founder of Famous Amos cookies

How he lost his money: Amos started a cookie business after deciding to leave his cushy job as a talent manager for the William Morris Agency in New York in 1975. By the early 1980s, Famous Amos hit $12 million in sales. However, his ego and lack of business acumen eventually brought the company down.

How he came back: Despite hitting hard times, Amos’s entrepreneurial spirit never died. In 1993, he founded Uncle Noname Cookie Company (he’d lost the right to use “Famous Amos” as the result of his earlier failure), and in 1995 he changed it to Uncle Wally’s, with a focus on muffins. Last year, Amos returned to his roots with the launch of Wamos Cookies. When discussing how to become a successful entrepreneur and stay that way, he told Kiplinger, “You can’t be profitable unless you have a team that’s working as a unit. I learned that lesson from losing Famous Amos.”

Read more about Wally Amos and how he became an entrepreneur in our slide show 5 Midlife Millionaires.

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SLIDE SHOW: 7 Self-Made Immigrant Millionaires

SLIDE SHOW: 6 Rags-to-Riches Millionaires

SLIDE SHOW: 5 Midlife Millionaires

SLIDE SHOW: 6 Millionaire Moms

QUIZ: Do You Have What It Takes to Be a Millionaire?