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Iconic guitar maker seeks bankruptcy protection

The last few years have seen a number of retail stalwarts succumb to a changing economy. An increasing number of consumers are shopping online and passing up traditional brick and mortar establishments. This change has affected retailers across a number of industries, from Circuit City to Borders Books to Toys-R-Us.

These retailers ultimately went out of business through Chapter 7 bankruptcy. However, some businesses are choosing to seek Chapter 11 bankruptcy so that they can have a better chance of emerging from bankruptcy as stronger, more efficient companies.

Long time musical instrument maker Gibson Brands has recently filed for Chapter 11 bankruptcy protection. The company that was made famous by creating brands such as Gibson guitars, Baldwin and Wurlitzer pianos, as well as Cerwin Vega speakers sought court intervention after what is being called a “devastating” financial fall.

Through Chapter 11 bankruptcy, corporations and partnerships may reorganize their debts and create a reasonable repayment plan, so that the business may return to profitability. According to a recent cnbc.com report, Gibson is working on deals with its creditors that will allow it to survive after bankruptcy. Chapter 11 is not limited to large corporate enterprises, as individuals may seek protection under this chapter as well. However, troubled businesses often resort to Chapter 11 because it allows for the restructuring of an unlimited amount of debt; unlike Chapter 13.

Chapter 11 also allows businesses to remain in control of their assets as the bankruptcy proceeds. As “debtors in possession” they can continue their operations and maintain decision-making powers. Gibson sells more than 170,000 guitars each year in more than 80 countries. It claims nearly 40 percent of the market for guitars valued at $2000 or more. Since its founding in 1894 has become an iconic brand among musicians and iconic artists such as B.B. King, Lenny Cravitz, Keith Richards and Elvis Presley, to name a few.

Because of this, it is no surprise that the company has chosen Chapter 11 bankruptcy while it works through financial difficulties. Like other successful Chapter 11 bankruptcies (i.e. General Motors) Gibson is likely to part ways with its Gibson Innovations unit, which makes speakers and Philips branded headphones.

The story exemplifies the importance of an experienced bankruptcy attorney when considering Chapter 11 protection.

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