Circuit City Files for Bankruptcy Chapter 11

Despite efforts to keep the system afloat, including shutting down more than 20 percent of its stores last week, Circuit City Stores has filed for bankruptcy. This year's economic downturn seems to have been too much for the Richmond, Virginia-based electronics giant, who has been struggling non-stop since last year to match sales with rival Best Buy and other big box stores.

Chapter 11 bankruptcy protection doesn't necessarily mean that the Circuit City stores will be closing tomorrow. It does, however, allows them to hold off creditors and operate as normal while they develop a financial reorganization plan. The problem with this of course, for an electronics retailer, is that they largely operate on credit. It's going to be very difficult for the company to operate its store when all of its vendors are owed money and will presumably begin requesting future orders be paid up front prior to shipment.

In the bankruptcy filings, which are traditionally wanting on info, Circuit City says it has more than $1 billion in assets and more than $1 billion in liabilities. The company stated that it anticipates it would have money to distribute to unsecured creditors, who get paid last.

As the holiday season begins, it's odd to think that Circuit City couldn't hold out until after the traditionally "black" (profitable) holiday season to help it get out of the red. We have very little knowledge of the actual details at present, but it's certainly hard to imagine a restructuring plan that doesn't involve some kind of fire-sale buyout from a larger vendor - if only to gain the real-estate enjoyed by the former retail giant.