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This week's Planet Money demonstrates just how helpful declaring bankruptcy can be. Roddey Player's Queen City Appliances was a Charlotte, North Carolina, staple. But when the housing bubble burst in 2009, the appliance market tanked, forcing Queen City to file for Chapter 11 after 60 years in business.
Chapter 11 of Title 11 of the United States Code is way for a business to put off paying its debts while it designs and implements a reorganization plan.
Planet Money's Stacey Vanek Smith notes that bankruptcy is something the US does uniquely right.
"In this country, we are really good at going bankrupt, and it may actually be one of our economy's secret weapons," she said.
In fact, she points out, Chapter 11 is so economically appealing that European countries have adopted similar procedures in recent years.
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But that's not to say that the process is easy or all upside; this isn't just a chance for a company to eke out a few more years of business-as-usual while their debts are held. The reorganization plan must be approved by the bankruptcy court and the business's creditors. In fact, the plan is usually formed in conjunction with a committee of the business's largest creditors.
Once the plan is confirmed, many previously routine business transactions now become subject to court approval. For Player, that even meant getting permission to fuel his delivery trucks. On top of that, he had to lay off 135 of his employees and close 13 of his 17 stores.
On the bright side, after a year and a half, Player and Queen City Appliances were able to emerge from bankruptcy, though Player found the process grueling.
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Moreover, bankruptcy can be viewed as a way to avoid paying off one's debts rather than a last-ditch effort to stay afloat. For example, when the rapper 50 Cent filed for Chapter 11 protection, lawyers for a woman who won a legal judgment against him suggested he simply didn't want to pay up.