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Toys R Us files for Chapter 7 bankruptcy

A famed toy chain is closing its doors in a surprise bankruptcy filing. Toys R Us, known here in Kentucky and around North America as the premier provider of toys and children's supplies, is converting an existing Chapter 11 bankruptcy to Chapter 7 liquidation proceeding. While there is no word on when, or in what manner, the chain will begin closing its locations, Americans can expect to look elsewhere for toys this coming holiday season. 

The company initially filed for Chapter 11 bankruptcy protection in Sept. 2017, which typically involves restructuring operations and reducing debt through cost-saving measures. Unfortunately, this tactic appears to have been ineffective in curbing the company's mounting debt. As a result, the company now plans to convert to Chapter 7 liquidation. 

Typically, a Chapter 7 filing results in the appointment of a trustee by the bankruptcy court, who then takes an accounting of the company's debts and assets. Assets are gathered and then liquidated to pay creditors, starting with legal and administrative fees and followed by secured creditors. Unsecured creditors are compensated last, and sometimes do not receive all or even part of what they are owed. 

Some Kentucky residents are already aware of the positive side of Chapter 7 bankruptcy: once a company's assets are liquidated, they are essentially free of much of their existing debt. In some cases, certain unsecured debt may also be erased by the court. This may allow the company's ownership to restructure their personal finances and re-enter the market to invest in other ventures from a stronger financial footing. 

Source: USA Today, "How Chapter 7 liquidation works: Toys R Us prepares to go out of business", Joan Verdon and Nathan Bomey, March 9, 2018

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