Many are asking if book seller Borders can avoid a bankruptcy filing given its continued negative financial situation.

Nearly 300 Borders employees in Middle Tennessee were told yesterday that the Lavergne Borders Distribution Center would close in July.  Ouch!  Last March approximately 120 employees were cut from the payroll.

The parent company, Borders Group, Inc. is located in Ann Arbor, Michigan.  The company lost over $74 Million in the third quarter of 2010.  The first quarter of the year is often difficult in the book selling business.

Knoxville bankruptcy attorney Dan Scott wonders if a Chapter 11 case may be on the horizon to allow Borders to restructure its short and long term debt.  Among the benefits of a Chapter 11 bankruptcy are:

• The business operates in the same manner it did before the case is filed except it will operate without additional credit in most instances
• The business can sell or abandon assets that are not critical to the success of the business
• A Plan of Reorganization will be filed to restructure the repayment of debts.  Sometimes unsecured creditors only get paid a small percentage of what they are owed
• Defaults on secured debts can be cured inside the bankruptcy
• Time for repayment of secured debts may often be extended

Only time will tell if Borders can survive outside of the bankruptcy court.  If they end up in bankruptcy they will be in good company.  I noted in another post that Eva Longoria’s nightclub Beso’s recently filed a Chapter 11 in Las Vegas.