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Is a commercial bankruptcy in J.C. Penney's future?

No Tennessee business owner creates a business with the notion that it will eventually go bankrupt. However, economic hardships can plague a business -- even a successful one -- at any time. Popular retailer J.C. Penney looks to be heading toward a commercial bankruptcy. Can the company turn itself around and become profitable again?

The two most common business bankruptcy options are Chapter 7 and Chapter 11. A Chapter 7 bankruptcy is reserved for companies who have no chance of restructuring. A Chapter 11, on the other hand, allows the company to repay debts while simultaneously creating a restructuring plan. The company continues to operate during this time.

With most bankruptcies, the shareholders receive nothing, since the company is out of money. Will this happen to J.C. Penney? The company has seen sales slump as of late and is finding it difficult to recover financially. However, the company has one last chance to recover with news of an equity raise. This infusion of cash can potentially help investors receive large returns.

If the cash doesn't help, then J.C. Penney could consider a reorganization bankruptcy, even if it is still profitable. A reorganization could position the retailer to become the leader it once was.

Chapter 11 bankruptcy offers many advantages for a company that wants to continue operating but needs to stop creditor harassment for a period of time. J.C. Penney has a long history in the retail world. By finding ways to trim costs and increase revenue, the company may be able to slowly see signs of success again.

Source: Daily Finance, "Should J.C. Penney Take a Tip From American Airlines?," Alexander MacLennan, Sept. 28, 2013

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