Circuit City Files Bankruptcy Chapter 11 Protection

The big box electronics store will stay open for business during this holiday season, but after that, it isn’t known what Circuit City’s business status will be. Filing for Chapter 11 will allow Circuit City to keep their creditors at bay and continue operating while the company creates a plan for financial reorganization.

As consumers spend less while credit becomes harder to obtain, Circuit City has been struggling to stay competitive with its number one rival Best Buy. The decision to file for Chapter 11 protection comes directly after the retailer announced the closing of its stores.

A choice to file bankruptcy protection came after vendors began pressuring Circuit City during the super busy holiday shopping season. Various vendors threatened to withhold products at the most important shopping time of the year, chapter 11 will allow Circuit City to continue to operate and hopefully generate much needed revenue.

Circuit City has reportedly secured $1.1 billion in loans to provide working capital while in bankruptcy. At the end of August, the Virginia based retailer had $3.4 billion in assets and $2.32 billion in liabilities.

There are a total of 700 Circuit City stores in the U.S., and the retailer plans on closing 155 of them by December 31st of this year. The closings will be spread out amongst 28 states with multiple closings in Phoenix and Atlanta. The bankrupt store will layoff close to 17% of its domestic workforce, affecting up to 7,300 employees.

Circuit City is the latest retailer hurt by a worsening economy which hasn’t left consumers with an abundance of shopping money. It’s a crucial time of the year as merchants prepare for the year-end holiday shopping extravaganza. The November-December shopping time has been known to account for 50% or more of a retailers’ annual profits and sales. It is unknown how this weak economy and unsure job market will effect American shopping habits this Christmas season.

The electronics retailer sent an email to CNNMoney.com in response to the Chapter 11 filing:
"Chapter 11 is not a closing or liquidation," the company said in an e-mail to CNNMoney.com. "We remain committed to doing a better job of taking care of our guests, and making it easier to shop at Circuit City."

This also according to CNNMoney.com, Circuit City spokesman Jim Babb stated, “it’s safe to assume” that consumers can expect deep discounts on electronics equipment while the stores are being liquidated due to the bankruptcy filing.

However, the remaining stores will remain as competitive as the market will allow in the coming weeks. Circuit City said it will continue to honor its warranty plans, including its Circuit City Advantage Protection Plans while going through the Chapter 11 process.