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MACY'S SEEKS BANKRUPTCY PROTECTION : Q&A : Some Answers to Questions About Filing

January 28, 1992|CARLA LAZZARESCHI | TIMES STAFF WRITER

Shoppers at Bullock's, I. Magnin's and Macy's stores are not likely to be directly affected by the Chapter 11 bankruptcy petition filed Monday by R. H. Macy & Co. However, the filing raises a number of questions and concerns among consumers, creditors and employees. Here are answers to some of the most frequently asked questions:

Q Do I still have to pay my charge accounts?

A Certainly. The bankruptcy filing does not change your credit relationship with Macy's, Bullock's or I. Magnin. The amounts of your charges, the terms of repayment and the due dates remain the same.

Q May I still use my charge card at these stores?

A Absolutely. The bankruptcy filing does not affect charge card use. In fact, retailers know that their charge account holders are among their most loyal customers and would encourage you to use your card as normal.

Q Will my deposits, layaways and any special orders still be honored? What if the store owes me money? Will the stores still accept requests for refunds and merchandise exchanges?

A These issues, lawyers say, are among the most tricky in bankruptcy law. But, ultimately, the answer is that the store is likely to honor all its pre-bankruptcy deposits and customer credits.

What complicates the issue is that store credits, deposits and layaway arrangements are part of the "unsecured debts" of a bankruptcy petitioner. Unsecured debts accumulated by a business before a bankruptcy filing--a category that also includes overdue merchandise and advertising billings, and store and mall lease payments--have a lower repayment priority under a bankruptcy reorganization than debts incurred after the filing. If you purchased merchandise or made layaway or special-order deposits before the bankruptcy filing, you are what is known as a "pre-petition" (or "pre-bankruptcy") creditor of the company. And, as such, you would stand behind post-bankruptcy creditors in the line for repayment.

However, in practice, many of the literally thousands of retailers that have filed for bankruptcy protection in recent years have gotten permission from the bankruptcy court to continue to honor their outstanding obligations to customers. Usually this permission is sought and given at the time of the bankruptcy filing. Macy's was no exception.

Q What happens in a Chapter 11 bankruptcy?

A Retailers such as Macy's that seek to reorganize their financial affairs in the hopes of remaining a going concern--as opposed to those seeking to shut down or liquidate their operations--have every reason to want to continue to operate as close to normal as possible. It is not in their interest--or the interest of their lenders--to upset customers. Although sales staff may be confused about the scope of their authority and responsibility in the early days of a bankruptcy, in most cases customers should find little difference in the way they are treated by the stores.

Q So consumers won't notice much of a change?

A That's what Macy's wants.

Q What can Macy's suppliers and landlords--all owed money from before the bankruptcy filing--expect?

A Matters are different for other pre-bankruptcy creditors of a retailer in bankruptcy reorganization. Merchandise suppliers, mall landlords and others owed money by the bankruptcy petitioner will have to wait for repayment until a bankruptcy reorganization plan is approved. Even then, they are likely to get only a fraction of what they are owed. However, under bankruptcy reorganization, the petitioner usually gets a fresh supply of money from lenders--which enables it to pay all debts incurred after the filing. In Macy's case, the retailer received a $600-million credit line that will allow it to cover employee salaries, merchandise deliveries and other operating expenses.

Q What about warranties? Will they still be honored?

A Most merchandise these days carries a warranty from the manufacturer, not the retailer. This type of warranty would not be affected by any bankruptcy filing.

Q Will the stores still carry the merchandise I'm used to purchasing there?

A In all likelihood, yes. However, initially merchandise levels may be lower than usual. Many vendors have not made shipments to Macy's, Bullock's and I. Magnin in recent weeks because they were not paid Jan. 10, as they should have been. While the manufacturers waited to see if they would be paid--and whether Macy's would file for bankruptcy--they suspended shipments.

Now that the Chapter 11 filing has been made and Macy's has a new credit line, the retailer can assure its suppliers of repayment and should begin to receive new shipments shortly. However, given the depressed state of consumer confidence, it is possible that inventory levels will be a little lower than usual this spring.

Q Will any Bullock's, I. Magnin or Macy's stores close? Will there be layoffs?

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