Military Retailer, USA Discounters Ltd. Racks up Debt, Files for Chapter 11

September 25, 2015
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USA Discounters Ltd., a retailer with stores located near 11 of the largest military bases in the nation, recently announced it had filed for Chapter 11 bankruptcy protection. The company plans to wind down operations after liquidating 24 of its store locations.

USA Discounters cites several factors for its debt

In court documents involving HMRC debt help, the company cited an unfavorable market, governmental actions against its business and a defaulted loan for its decision to seek bankruptcy protection. According to the Wall Street Journal, USA Discounters also reported outstanding debts that totaled $100 million, which included unsecured debts of $2.5 million.

The company now sells jewelry for cash only after it discontinued its credit sales program. In its petition, the retailer stated that it is owed approximately $114 million on existing payment plans. Company officials claimed that this is USA Discounters’ most valuable remaining asset.

These outstanding payments were part of the USA Discounters purchase plan, which established a fixed monthly payment for 30 months and carried interest and fees. In turn, the company received a security interest in the merchandise sold that enabled it to have the right to repossess items if payments were missed.

USA Discounters agreed to pay restitution and civil penalties

However, the retailer has come under fire in recent years after consumer reports investigations in multiple states revealed fraudulent business practices with its military customers. As a result of these investigations, the company agreed to pay $50,000 in civil penalties to the Consumer Financial Protection Bureau, with an additional $350,000 in restitution to its military customers. Further, USA Discounters reached an agreement to stop charging a $5 fee to determine eligibility for its military customers for financial protections under the Servicemembers Civil Relief Act.

The restructuring plan calls for USA Discounters to wind down

After it renamed itself to USA Living in response to the investigations, the company claimed its decision to file for bankruptcy protection was a “completely voluntary” move that was unrelated to the negative media attention.

Although the company intends to wind down operations, it claimed in court documents that it will use the bankruptcy period to find a buyer.

The retailer has closed 24 stores prior to seeking bankruptcy protection, but has not announced plans for its seven additional stores for its subsidiary, Fletcher’s Jewelers.

Are you a creditor in a bankruptcy?  Have you been sued by a bankrupt?  If you have any questions about your rights, please contact me, Joel Glucksman, at 201-806-3364.