The Not-So-Sweet Life: Crumbs Closes All Stores, May File for Bankruptcy

The Not-So-Sweet Life: Crumbs Closes All Stores, May File for Bankruptcy

by Kylie Ora Lobell, August 2014

The cronut may still be going strong, but the cupcake is on its way out. Crumbs Bake Shop, an iconic gourmet cupcake bakery, closed all of its stores on Monday, July 7 and laid off every employee, according to MSN.

Crumbs, which was founded 11 years ago by two Manhattanites, was the largest specialty cupcake bakery in the United States, says Nolan Feeney of Time. It boasted 48 locations and became available for public trading just three years ago. On July 1, the company was suspended from the Nasdaq because, Feeney writes, it “did not have the either mandatory shareholder equity nor had it met required benchmarks for market cap and net annual profits.”

Employees were notified at the beginning of Monday that it would be their last day at work. In a statement to the Wall Street Journal, the company said, “Regrettably Crumbs has been forced to cease operations and is immediately attending to the dislocation of its devoted employees while it evaluates its limited remaining options,” which will include filing for Chapter 7 bankruptcy.

Why did Crumbs fail?

According to the Wall Street Journal, last year, Crumbs lost $18.2 million, and in 2012, it experienced $10.3 million in losses. It had $6.3 million in cash two years ago, but in 2013, that number had dropped to $893,000. Though net sales saw an increase—in 2013, it had been $47.2 million, up from $43 million—it was not enough to save the company.

So what happened? Some are blaming it on the fact that America is going through a gluten-free craze, and cupcakes are full of it. It tried to save face by opening a gluten-free cupcake store in Manhattan, but that plan obviously did not pan out. Others say it’s simply because the cupcake trend is over. Aside from the one gluten-free location, the company didn’t keep up with the changing times or hook onto a more successful trend. Enthusiasm for cupcakes peaked in 2011, when Crumbs became public, and has been slipping ever since.

What are their options if they file Chapter 7 bankruptcy?

If Crumbs goes ahead with the filing, the courts will cancel all of their debts and may liquidate their assets to pay back creditors. An “automatic stay” will be put into place to stop creditors from trying to collect debt from the company, at least for a short while.

All of Crumbs’ properties will go into the hands of the bankruptcy court, so they won’t be able to sell anything after filing. If there are any liens on their properties, those will be terminated. At the end, it’s likely that all the debt will be erased, unless Crumbs committed any fraud or malicious acts.

What small business owners should know about Chapter 7 bankruptcy

According to Wadhwani & Shanfeld, if you file chapter 7 bankruptcy, your unsecured debt, which includes credit cards, personal loans, and medical bills, could be eliminated in as little as four months. It is the simplest and fastest method for wiping out debt and getting back on your feet.

If you want to inquire about filing, you’ll have to take a Means Test, which entails looking at your income and the size of your household, as well as any means you could use to pay back your debts (i.e. assets or properties). A lawyer will be able to conduct this for you to see if you’re qualified.

Usually, filing Chapter 7 bankruptcy only takes one visit to the courthouse. It costs about $335 to file and you’ll be required to undergo credit counseling to ensure that you’re set up for the future.