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Clothing retailer files for Chapter 11 bankruptcy

Just as private individuals may find themselves facing overwhelming debt, so too may a business find itself on precarious financial footing. A clothing retailer popular with New York teens recently filed for Chapter 11 bankruptcy. The company, which was founded in 1989, hopes to eliminate some of its debt in an effort to turn its economic misfortunes around.

American Apparel has allegedly not made a profit for around six years and recently had to fire its founder after allegations of misconduct were lodged against him. While it battles litigation based on that termination of employment, the company will also be going through the process of Chapter 11 bankruptcy. The process with include restructuring, which will take around six months to complete, as well as the reduction of the company's debts from nearly $300 million to under $140 million.

Different forms of bankruptcy follow different legal processes and mandate different actions on the parts of debtors. While Chapter 7 bankruptcy involves the liquidation of a debtor's assets, Chapters 11 and 13 bankruptcies involve the reorganization and liquidation of debts. The needs of the debtor will dictate which process is best for it, and individuals who have questions about the different forms of bankruptcy may choose to discuss their options with bankruptcy professionals.

Commercial bankruptcy through Chapter 11 allows companies like American Apparel to maintain business operations as they restructure their entities for profitability. Whether the company survives will depend on how well it is able to establish its profitability plan for the future. As the year unfolds, consumers of the popular clothing retailer will have to wait and see if it survives its financial troubles.

Source: Business Insider, "American Apparel has filed for bankruptcy," Supriya Kurane, Oct. 5, 2015

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