In December 2014, clothing retailer Wet Seal, found in shopping malls across the United States, announced that they were exploring options to address their pressing liquidity needs before resorting to bankruptcy. By the beginning of January, the company issued an earnings release that indicated they had hired legal help to explore bankruptcy options.

Looming Chapter 11 Bankruptcy Filing

If Wet Seal decides to move forward with their bankruptcy filing, they would seek Chapter 11 protection. Chapter 11 bankruptcy allows an individual or business to restructure finances as approved by bankruptcy court. This reduction of obligations and repayment terms allows the debtor to balance their debts and continue staying in operation. In addition, the business can sell assets in order to downsize and pay off claims.

There are a few key points to reorganizing under Chapter 11 bankruptcy:

• The debtor remains able to continue with their business operations
• Bankruptcy court will control the major decisions of the company
• Creditors have a voice in what happens with the business
• A reorganization plan must be developed and approved
• Final outcome of bankruptcy can take up to two years to wrap up

According to recent documents, the company has $19.1 million in cash and equivalents up against $21.3 million in debts, with its inventory declining by 26%. The company's initial concerns involve paying off immediate liquidity to implement operating strategies. They plan to do so by increasing the company's online presence and rebranding the stores with new merchandise.

According to some experts, Wet Seal is failing due to its inability to target a specific customer, competition with more popular retailers, strained leadership, and even allegations of racism. Along with Wet Seal, Deb Shops and Delia's have already announced their bankruptcy filings. All three clothing stores cater to teenage girls and are primarily located at stores within shopping malls.