Q&A; : How Retailer’s Action Will Affect Customers
Although most shoppers at the Broadway and other department stores owned by Carter Hawley Hale Stores are unlikely to be directly affected by its bankruptcy reorganization, the filing nevertheless raises a range of questions and insecurities among consumers.
In general, bankruptcy lawyers note that although the letter of the law governing a business reorganization may seem unfair to consumers, in practice the bankruptcy process recognizes that maintaining customer goodwill is essential if a troubled business is to rebuild. Lawyers note that most retailers move quickly to secure court permission to treat their customers on a “business as usual” basis throughout the bankruptcy reorganization.
What should you do if you’re a customer of one of Carter Hawley Hale’s department stores? Here are answers to some of the most frequently asked questions:
Question: Do I still have to pay my bill?
Answer: Absolutely. Your obligation is completely unchanged. The amounts of your charges, terms of repayment and due dates remain the same.
Q: Can I still use my credit card?
A: The bankruptcy filing does not change your credit relationship with the retailer. In fact, realistically speaking, retailers know that their charge customers are among their best and most loyal and are unlikely to deny credit.
Q: Will my deposits, layaways and any special orders still be honored? What if the company owes me money? Will the company accept requests for refunds and merchandise exchanges?
A: This is a tricky question. Ultimately, the answer is probably yes, lawyers say. But customers could face delays. And under a worst-case scenario of a bankruptcy filing, the answer could be no.
Unsecured debts accumulated by the business before the filing--such as lease payments and merchandise billings--have a lower repayment priority than those incurred after the filing. So, if you’ve purchased merchandise, made layaway or special-order deposits before the filing, you are a “pre-petition” (pre-bankruptcy) creditor of the company. However, the law specifies that customer deposits of $900 or less have a higher priority for repayment.
That’s what the law says. However, in practice, says Hydee R. Feldstein, a partner in the Century City law firm Gendel, Raskoff, Shapiro & Quittner, major retailers seeking to rebuild their business will do whatever they can to take care of their customer. Many retailers filing for bankruptcy reorganization simultaneously ask the court for permission to honor outstanding obligations to their customers, a power that permits them to accept exchanges and make refunds of merchandise sold before the filing. The same authority allows them to honor pre-petition deposits and layaway programs.
But even if the retailer seeks this authority upon filing for bankruptcy, the court may not grant it immediately. In these cases, customers can be forced to wait to make exchanges and receive special-order merchandise. And even if the authority is granted, customers might be forced to accept store credit, rather than cash, for merchandise exchanges.
If the retailer does not seek or is not granted authority to honor its pre-bankruptcy deposits and customer credits, customers should not take matters into their own hands. Feldstein recalls an instance in which a customer tried to take advantage of a pre-petition credit he was owed by charging merchandise after the filing and then refusing to pay. Legally speaking, these charges are considered as different as apples and oranges, and without specific authority, retailers are prevented from using one to offset the other. Customers who attempt to do so could be setting themselves up for criminal charges, she notes.
Q: Do I have to worry about warranties?
A: Most merchandise carries a warranty from the manufacturer, not the retailer. This warranty would be unaffected by any bankruptcy filing.
Q: Will the store still carry the merchandise I’m accustomed to purchasing there?
A: Possibly, but there’s a strong likelihood that merchandise levels could be lower and less diverse than usual.
Stores in bankruptcy are often behind in their payments to their suppliers, which, in turn, may not be extending the same levels of credit as before. Also, stores may not stock as much merchandise in order to keep their inventories manageable.
However, in some cases, bankruptcy can have just the opposite effect. Lenders are more willing to extend credit after bankruptcy filing because they feel more protected making a loan that has a higher, “post-petition” repayment priority.
