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Boston-based Karmaloop files for Chapter 11 bankruptcy

For years, the Massachusetts company known as Karmaloop was the midwife to hundreds of urban clothing startups across the country. Through online marketplaces, it connected the trendiest American apparel companies with eager buyers from around the world. Now, after a series of expansions that perhaps left the company overexposed financially, Karmaloop seeks to reorganize its operations in Chapter 11 bankruptcy proceedings.

Karmaloop tapped into a million dollar question: how do urban streetwear enthusiasts buy clothing that is typically only found in larger urban centers? The answer, thanks to Karmaloop, was to establish several online marketplaces.

Thousands of urban apparel companies paid Karmaloop to have their products listed on one of Karmaloop's websites. Customers would pay Karmaloop for the clothing, apparel companies would ship the product and Karmaloop would pay them once customers received their orders. In return, Karmaloop would keep a percentage of the sales price. For more than a decade, Karmaloop and its online marketplaces thrived, and so did the boutique fashion labels that supplied the company with products.

When Karmaloop expanded beyond its core mission into less successful ventures, such as media properties, business seemed to suffer. Eventually, the company couldn't pay some of its clothing vendors on time - or at all. Its Chapter 11 bankruptcy filing lists almost 5,000 pages of creditors.

Chapter 11 bankruptcy, also known as business bankruptcy, offers companies like Karmaloop a way to reorganize their operations and restructure debt in an orderly manner. Usually with the help of an experienced Chapter 11 bankruptcy attorney, filers prepare a debt repayment plan, which must be approved by all creditors and the court. Chapter 11 not only allows businesses debt relief, but it also allows them to retain possession of their property and remain in business during reorganization.

In Karmaloop's case, Chapter 11 could be just the lifeline the company and its suppliers need.

Source: Bostinno, "Inside the Mad World of Kazbah, Karmaloop's Bankrupt Fashion-Startup Bazaar," March 25, 2015

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