Calm down, Roscoe's isn't closing because it's in bankruptcy

The news that the parent company of Roscoe's House of Chicken and Waffles filed for bankruptcy has left many Southern Californians bereft. Don't worry. Your beloved chicken and waffles aren't likely to disappear any time soon.

East Coast Foods, which owns the Southern California restaurant chain, filed for Chapter 11. 

"Chapter 11 is usually intended to reorganize the company," says professor Dan Schechter, who teaches bankruptcy at Loyola Law School. "Instead of going out of business, the company will develop a plan to pay some of its creditors some of the money they're owed and it will stay in business."

That's very different than filing for Chapter 7. "Chapter 7 is a straight liquidation. It's a hopeless case and the company wants to shut down and pay off creditors as best it can," Schechter says. 

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The bankruptcy filing by East Coast Foods may be a strategic move to avoid paying all or part of a $3.1 million legal judgement, according to Schechter.

In 2013, former Roscoe's employee Daniel Beasley, who is African American, filed a suit alleging  discrimination and wrongful-termination. He won his case. In the fall of 2015, East Coast Foods was ordered to pay him $1.6 million in damages and another $1.5 million in legal fees. 

Once a company files for Chapter 11, it develops a reorganization plan, which means paying back creditors at least some of the money they're owed. But all creditors are not created equal. 

"The goal in Chapter 11 is to get everybody to take the same haircut, but in the real world that doesn't happen," Schechter says. Some creditors will end up receiving 90 cents on the dollar; others may get only 10 cents on the dollar.

Banks, who hold mortgages or liens on the company's assets, will usually get their money before anyone else. "They are generally paid 100 percent of what they're owed," Schechter says. 

After that, a company in bankruptcy will pay "unsecured claimants" — laborers, suppliers, the electric company, the water company and, in this case, a claimant like Daniel Beasley. 

But for fans of the fried chicken and waffles at Roscoe's, things look bright.

The chain could shut its doors, but it doesn't look like that will happen any time soon — at least not because of this bankruptcy filing. 

"I don't know anything about their business, per se, other than it's delicious," Schechter says, "but I just don't think that's going to happen. I think that they're going to work something out. They're going to develop a plan of reorganization in which some of the creditors will get something. My guess is that Mr. Beasley isn't going to get his full $3 million."