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Bakery files for bankruptcy

Crumbs, a bakery specializing in over-sized cupcakes, is filing for bankruptcy protection. Based in the northeast, the company had locations in Clarendon and Tysons Corners in Virginia. Court records indicate the filing is a Chapter 7 case, which is the process used for liquidation. The announcement came just a week after the business was removed from the NASDAQ.

Crumbs was founded in 2003 and went public in 2011. The company says it notified all of its employees of the impending closing. It's unknown how many of the company's remaining stores were still operating on the last day. The company experienced a steep decline in profits for the quarter ending on March 31, and the losses were estimated to be $3.8 million.

A Chapter 7 filing generally means that a company's remaining assets will be sold and the money used to pay its creditors. Usually, secured creditors are at the top of the list and are paid first. Once they are paid, unsecured creditors may recoup some of their losses if there's any money left to pay them. Most of the time, a Chapter 7 case means that the company will not be able to continue business or reopen later.

When businesses face financial difficulties that simply can't be paid in a timely manner, they do have recourse in the Bankruptcy Code. In addition to the Chapter 7 filing that is detailed in this article, the business may, under certain circumstances, file for Chapter 11, which is known as reorganization. In these circumstances, the business can generally continue operating while the case is settled. They may emerge from bankruptcy as a smaller company, but they can remain in business unlike companies that have been liquidated in Chapter 7.

Source: CBC DC, "Cupcake Shop Crumbs Closes All Stores", July 08, 2014

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