Queen City Appliances was founded ~1950, at some point the founder’s son Ronny took over as CEO. It was doing well, and borrowing money to make money. Then 2008 happened, and in 2009 the business was doing badly, no one buying new refrigerators. So Ronny filed for bankruptcy. He had to sign the papers along with his 80something-year-old mother, who had helped to build the business from the ground up and still did accounts four days a week. It was one of the worst days of his life. These papers are public, telling the court and the world everyone you owe money to. Within minutes a local paper had a story about it on its website, and his son texted to ask if he was okay.
But bankruptcy is kind of weird in the US, because you don’t necessarily have to stop operating, you can file for “chapter 11”. This goes back to railroads, which would run out of money at the slightest economic crisis but everyone still wanted them to run. So some means was developed for that to happen.
QCA went for it. Ronnie had to convince a judge and his creditors (via vote) that he had a way forward. After that, he had to ask permission for everything, including “paying his electricity bill” and “filling his trucks up with gas”. And he had to submit weekly progress reports. He went from 17 stores to 4. His creditors wouldn’t get everything back, some low on the pecking order only got 10%, but better than nothing. And after 1 1⁄2 years, he got a super short legal document saying his company was no longer bankrupt.
Everyone else thought the US was crazy when they first implemented this, but some economists think it’s part of why they did better during the recession than most, and some other countries are looking to emulate it now. Ronnie’s mum also likes bankruptcy more than she used to, having previously thought it was a “morally upright people do not do this” sort of thing. No one at church judged her for it either.
In a present day (as of rerun airing) update, QCA had a couple of bad years in between, but it’s doing well again.
Planet Money: the Benefits of Bankruptcy
Rerun of a 2015 episode.
Queen City Appliances was founded ~1950, at some point the founder’s son Ronny took over as CEO. It was doing well, and borrowing money to make money. Then 2008 happened, and in 2009 the business was doing badly, no one buying new refrigerators. So Ronny filed for bankruptcy. He had to sign the papers along with his 80something-year-old mother, who had helped to build the business from the ground up and still did accounts four days a week. It was one of the worst days of his life. These papers are public, telling the court and the world everyone you owe money to. Within minutes a local paper had a story about it on its website, and his son texted to ask if he was okay.
But bankruptcy is kind of weird in the US, because you don’t necessarily have to stop operating, you can file for “chapter 11”. This goes back to railroads, which would run out of money at the slightest economic crisis but everyone still wanted them to run. So some means was developed for that to happen.
QCA went for it. Ronnie had to convince a judge and his creditors (via vote) that he had a way forward. After that, he had to ask permission for everything, including “paying his electricity bill” and “filling his trucks up with gas”. And he had to submit weekly progress reports. He went from 17 stores to 4. His creditors wouldn’t get everything back, some low on the pecking order only got 10%, but better than nothing. And after 1 1⁄2 years, he got a super short legal document saying his company was no longer bankrupt.
Everyone else thought the US was crazy when they first implemented this, but some economists think it’s part of why they did better during the recession than most, and some other countries are looking to emulate it now. Ronnie’s mum also likes bankruptcy more than she used to, having previously thought it was a “morally upright people do not do this” sort of thing. No one at church judged her for it either.
In a present day (as of rerun airing) update, QCA had a couple of bad years in between, but it’s doing well again.