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Economy | Business

Bankrupt Businesses Lead To Confusion Among Employees And Consumers

Bankruptcies for businesses in Oregon shot up 140 percent from 2007 to 2008.  That amounts to more than 1400 Oregon businesses filing for bankruptcy last year.

“I have never seen a volume like this in terms of business calls,” says Ann Chapman, a bankruptcy attorney for the last 23 years.  She’s currently a partner with Vanden Bos and Chapman LLP in Portland.  “It’s wholesale across the board, it’s all industries.”

Those industries include Monaco Coach, a RV manufacturer in Coburg, and Joes, a sporting goods retailer based in Wilsonville.  Both companies filed for bankruptcy in the last month.

These filings can be confusing for both customers and employees.

For example, Joes sold five packs of lift tickets for Mt. Bachelor ski area for $269.  But Mt. Bachelor is no longer accepting those tickets.

“All the proceeds for those tickets are being held by Joes and are supposed to be passed along to Mt. Bachelor,” says Alex Kaufman, a marketing director for Mt. Bachelor.  “However, we have not seen any of it.”

Kaufman says most of the tickets have already used by skiers and snowboarders, leaving the ski area with more than $100,000 in redeemed tickets that Joes hasn’t paid them for.

The state attorney general, though, doesn’t agree with how Bachelor is handling this issue and says the ski area should honor the tickets that people purchased at Joes.

“They bought a valid ski pass.  Bachelor’s dispute is not with the consumers who paid fair and square, their dispute is with Joes and that dispute is just like every other creditor of Joes,” says Tony Green, a spokesman for the attorney general.

Green says skiers and snowboarders should contact the attorney general’s office if Bachelor refuses to accept lift tickets sold by Joes.

When buying other items from retail stores, consumers should use common sense.

For example, if a retail business has filed for bankruptcy but is still open, bankruptcy attorney Ann Chapman recommends you purchase your merchandise and leave the store with it rather than making a down payment and returning to pay off the item.  

She cites Levitz Furniture as an example.  They filed for bankruptcy several years ago but remained in business for several months.

“So during that time, if you went in and put a deposit down on a new bedroom set, and they converted their case to a Chapter 7 in the meantime, you would likely lose your money,” says Chapman.

In other cases, there are no problems at all with purchases from a company going through bankruptcy.

Take hunting and fishing licenses sold through Joes.  Those are still valid.

“All the licenses sold through Joes are honored, period,” says Rick Hargrave, a spokesman for the Oregon Department of Fish and Wildlife.

Hargrave says the state has been paid by Joes for those licenses.

But what about unused gift cards sold by a business like Circuit City, a company that filed for bankruptcy and went out of business last year?

“Buying gift cards in this economy is a risky business,” says attorney general spokesman Tony Green.  He says gift cards should be used quickly to prevent hassles if the company does close down.

And Green has another tip for gift card purchases— pay for them with a credit card.

“If the retailer does go out of business, you can try and dispute your charge through your credit card company,” says Green.

If the company does file for bankruptcy and you still have an unused gift card, you become a creditor to that company, says Green.  

But he cautions that you may never see a refund.  He advises people to contact the attorney general’s office to learn about their options in such cases.

At Monaco Coach in Coburg, the situation is a bit more complicated.  Monaco filed for bankruptcy earlier this month and laid off more than 2000 employees.

Now banks are refusing to cash employee’s final paychecks, citing the bankruptcy filing.

Bankruptcy attorney Ann Chapman says Monaco employees will likely be paid, but it could take years of  court proceedings.

“The court has inherent power within the bankruptcy code to do what seems fair and right and is going to lead to an efficient result for everybody, not just the employees getting their paychecks— but for the whole reorganization effort,” says Chapman.

When a reorganization effort or bankruptcy takes place with a business that remains open, such as Joes, Chapman says a motion is usually filed in court to let employees cash their paychecks while the bankruptcy proceeds.  

“As a practical matter, they’re going to receive their money eventually, and if you want to keep good employees around, you want to make sure they get paid,” says Chapman.

As far as getting paid herself, Chapman says even bankruptcy attorneys have payment options for people or businesses who can’t pay their other bills.

“We really have an advantage over most lawyers to basically know going in what our client’s capacity is to pay us,” says Chapman.  “There’s nothing wrong with selling an asset for its fair value before bankruptcy, or taking a lien against an asset and borrowing money against it to pay your legal fees.”

But Chapman’s outlook on the future of the economy—and bankruptcy filings—is not so positive.

“I think we’re at the beginning of a long, very difficult reorganization of this economic system at a very deep level and it’s one that I think is going to take a long time,” she says.