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As cupcake craze dies down, bakery files for Chapter 11

The cupcake craze of recent years swept Michigan just like every other part of the country. For one little East Coast bakery that first opened its doors in 2003, the national sweet tooth opened up opportunities to expand the business, even going public less than 10 years later. Crumbs was famous for its calorie-packed cupcakes, which sold for around three or four dollars apiece.

However, with changing tastes and perhaps the end of a fad, the company saw year after year of dwindling cash flow, and Crumbs finally made the decision to file for Chapter 11 bankruptcy. Crumbs Bake Shop initiated the business bankruptcy filing after defaulting on a loan of over $9 million. It closed all of its almost 50 stores and retained only nine of its over 450 employees.

Now, the same firm that helped Dippin' Dots return from bankruptcy to profitability is showing interest in Crumbs. A $6.5 million offer to buy the remnants of the business is getting a fast track from the bankruptcy judge. This includes approval to begin borrowing on a loan of over $1 million from the bidders, as well as the right to reject almost two dozen store leases, which could save the cupcake giant hundreds of thousands of dollars.

As previously noted on this blog, Chapter 11 can actually facilitate a business reorganization which can mean a return to profitability, as opposed to Chapter 7 which means going out of business completely. A case like the one above serves to highlight some other important benefits that may arise during the proceedings, as a bankruptcy judge works with the business and other parties to seek a successful resolution. Certain types of loans may become available, for example, and a business may be allowed to take cost-saving measures that might not otherwise be possible.

It can be difficult for a Wayne County business owner to forecast the types of complex business bankruptcy issues that may arise in any given case. However, with a solid understanding of the basic differences between commercial bankruptcy chapters, business owners may wish to follow up with a legal professional to look deeper into how the process might play out for them.

Source: The Wall Street Journal, "Bankruptcy Judge Puts Crumbs on Fast Track to Sale," Joseph Checkler, July 16, 2014

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