The Pains And Salvation Of Chapter 11 Bankruptcy
RENEE MONTAGNE, HOST:
The Great Recession taught us one thing. Bankruptcy may be an indicator of failure, but it can also be one of our economy's secret weapons. Stacey Vanek Smith from our Planet Money podcast illustrates that apparent contradiction with the story of one company that went bankrupt.
STACEY VANEK SMITH, BYLINE: Queen City Appliances was kind of an institution in Charlotte, N.C.
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RODDEY PLAYER: Hi, Roddey Player, here, with Queen City Audio Video and Appliances. You won't want to miss our blockbuster Labor Day sale with the lowest prices ever.
SMITH: Roddey Player was the CEO. His dad started the company. Roddey showed me a photo of him at a trade show next to an actual celebrity.
R. PLAYER: And then this picture, back in the '50s, of my dad with Miss America.
SMITH: And he's standing there with the TV.
R. PLAYER: Yeah, he is. He's - yeah, I think that's a Philco television set. And he's still got his flattop from coming out of the service, you can see there, too.
SMITH: What his father died, Roddey took over. And for a while, business was great. Roddey and his family borrowed money and expanded. Queen City went from eight stores to 17 stores. Then, in 2009, the recession hit.
R. PLAYER: I don't want to be called the eternal optimist, but I always felt it just couldn't get any worse, and it couldn't get any worse, and it couldn't get any worse.
SMITH: It got worse. Roddey couldn't pay his bills. The bank was calling in the loans. Roddey had to file for bankruptcy. When you file for bankruptcy, everything becomes public. Minutes after Roddey submitted the documents, The Charlotte Observer ran a story online. Roddey's son, who was away at college, saw the news.
R. PLAYER: He knew things were difficult for us, but I don't - you know, he sent me a text - a simple note, you OK?
SMITH: Roddey's mom, Frances Player, who was 83, had an especially hard time with it. She'd helped start the business 60 years before, and bankruptcy was just not something you did.
FRANCES PLAYER: Not easy to get up and go to church that Sunday morning. It really wasn't after it came out in the newspaper.
SMITH: In most countries, this would've been the end of the story for Queen City Appliances. But in the United States, there is chapter 11, as in chapter 11 of the bankruptcy code. It's a way for companies that can't pay their bills to not die, to get a second chance. That's what Roddey Player decided to do. When you file chapter 11, it's like hitting a big pause button. All the people you owe money to, for the moment you don't have to pay them. But you do have to make a list for the court of everybody you owe money to. Roddey's list was 133 pages long.
R. PLAYER: General Electric Company's on here for $556,000. Here's a freight company, AAA Cooper, we owed $865,000 to. OK, here's a $40 customer refund.
SMITH: In all, Roddey owed millions of dollars. He hired a turnaround expert who said, you want to be profitable again? You've got to close some of your stores.
R. PLAYER: I still have nightmares about that 'cause we had to eliminate a lot of jobs.
SMITH: Roddey went from 17 stores to four stores. He ran them as efficiently as he could, and he paid down his debts bit by bit. Every week, he had to submit a detailed progress report to the court - every week, for a year and a half. But on August 27, 2013, Queen City Appliances emerged from bankruptcy.
R. PLAYER: Bye, Zach (ph), we'll see you.
SMITH: Today, the business is doing really well. Roddey took me to the main warehouse. During the bankruptcy, it was almost empty back here. And now...
R. PLAYER: So dishwashers five-high, you know, laundry products are four-high. That just makes you feel good.
SMITH: Roddey says bankruptcy was awful, but his mom, Frances, who thought bankruptcy was not something good, solid people did - she became a fan.
Your mind was changed about bankruptcy?
F. PLAYER: Yes, it really was. It would have broken my heart if we'd closed (laughter).
SMITH: And she says people were surprisingly accepting, like that first Sunday morning after the news came out in the paper.
F. PLAYER: All of our friends - everybody was very supportive.
SMITH: So you went to church and it was OK?
F. PLAYER: It was OK. It was. Same seat (laughter) - same seat for how many years (laughter)?
SMITH: During the last recession, hundreds of thousands of companies went bankrupt in the U.S., but some of them made it out. And economists say this is one reason our economy bounced back faster than some others. A lot of countries in Europe have started adopting chapter 11-style laws. They decided they like our system of second chances. Stacey Vanek Smith, NPR News.
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