What Happens When a Retailer Goes Bankrupt?

Just when it looked like the so-called retail apocalypse was all the way in the rearview mirror, it managed to claim another victim.

(Image credit: Getty Images)

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 (opens in new tab), $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.

James Brumley
Contributing Writer, Kiplinger.com
James Brumley is a former stock broker, registered investment adviser and Director of Research for an options-focused newsletter. He's now primarily a freelance writer, tapping more than a decade's worth of broad experience to help investors get more out of the market. With a background in technical analysis as well as fundamental analysis, James touts stock-picking strategies that combine the importance of company performance with the power of stock-trade timing. He believes this dual approach is the only way an investor has a shot at consistently beating the market. James' work has appeared at several websites including Street Authority, Motley Fool, Kapitall and Investopedia. When not writing as a journalist, James works on his book explaining his multi-pronged approach to investing.