Former BL Stores, Inc., the entity formerly known as Big Lots, Inc., has asked a Delaware bankruptcy court to convert its Chapter 11 reorganization case to a Chapter 7 liquidation, citing insufficient resources to continue operating under bankruptcy protection after administrative costs ballooned to more than triple original projections.
The retailer and its affiliates filed the conversion motion on October 24, 2025, in the U.S. Bankruptcy Court for the District of Delaware, arguing they have fulfilled their primary objective of selling substantially all assets and lack the financial means to pursue a traditional reorganization plan. The motion reveals that administrative expense payments have reached $60 million to date, with an additional $5 million distribution planned—far exceeding the company's initial forecast of less than $20 million.
Successful Asset Sale Preceded Conversion Request
The conversion request comes nearly 10 months after Former BL Stores and its affiliates filed for Chapter 11 protection on September 9, 2024. The case achieved a significant milestone when the court approved the sale of substantially all assets to Gordon Brothers Retail Partners, LLC (GBRP) on December 31, 2024, with the transaction closing on January 3, 2025.
"On December 31, 2024, the Debtors achieved what only a few days earlier seemed improbable: gaining Court approval of a sale—with the support of the Official Committee of Unsecured Creditors appointed in the Chapter 11 Cases—that would preserve thousands of jobs and allow the BIG LOTS® brand to continue," the debtors stated in their motion.
The GBRP sale preserved hundreds of stores and thousands of jobs while allowing the Big Lots brand to continue operations under new ownership. Following the sale's closure, the debtors remained in Chapter 11 to "leverage their knowledge of the business to efficiently maximize and monetize the value of the estates' remaining assets."
Administrative Costs Exceed Projections by Over 300%
A striking aspect of the case has been the dramatic increase in administrative expenses. Court documents reveal that at the time of seeking approval for the GBRP sale, debtors forecast total administrative expense claim payments would be less than $20 million. However, as of the motion filing date, the debtors have distributed more than three times that amount.
The substantial administrative costs included reconciling nearly $300 million in pre-closing administrative expense claims and making interim payments of $10 million in June 2025, $10 million in August 2025, and $40 million in October 2025 to holders of reconciled claims.
The debtors also entered into significant settlements, including the "Interchange Settlement" and "Committee/D&O Settlement," which provided additional value to the estates but further strained available resources.
Legal Framework for Conversion
The motion relies on Section 1112(a) of the Bankruptcy Code, which provides debtors with an absolute right to convert voluntary Chapter 11 cases to Chapter 7 liquidation proceedings. The debtors argue that none of the statutory exceptions apply, as they remain debtors-in-possession, originally commenced the cases voluntarily under Chapter 11, and the cases were not converted from another chapter.
"The Debtors no longer have sufficient resources to fund a continuation of the Chapter 11 Cases, and there is no reasonable likelihood that the Debtors can confirm and consummate a chapter 11 plan with the available funding," the motion states.
The debtors contend that conversion serves the best interests of their bankruptcy estates and creditors, noting that "a chapter 7 trustee will be able to more efficiently and effectively administer the residual, post-sale assets of the Debtors' bankruptcy estates."
Comprehensive Conversion Procedures Proposed
The motion outlines detailed conversion procedures designed to ensure a smooth transition to Chapter 7. Key provisions include:
Professional Fee Applications: Professionals must submit final fee applications within 45 days after appointment of a permanent Chapter 7 trustee. The debtors propose maintaining existing professional fee escrow arrangements established under the GBRP sale.
Administrative Claims Reserve: A $3.5 million reserve will be maintained for disputed pre-closing administrative expense claims and Section 503(b)(9) claims, held in a segregated account managed by claims agent Kroll Restructuring Administration LLC.
Committee Continuity: The Official Committee of Unsecured Creditors will remain in existence until appointment of a permanent Chapter 7 trustee, retaining standing to file final fee applications even after dissolution.
Books and Records Transfer: Debtors must provide remaining books and records to the trustee within 30 days of appointing an interim Chapter 7 trustee, along with filing consolidated schedules of unpaid post-petition debts and final reports.
Court Scheduling and Next Steps
The debtors have requested expedited consideration of their motion, proposing an objection deadline of October 31, 2025, at 12:00 p.m. ET, and a hearing date of November 4, 2025, at 1:00 p.m. ET before Judge J. Kate Stickles.
If no objections are filed, the court may grant the requested relief without a hearing. The conversion would become effective immediately upon entry of the court's order.
The case represents a significant conclusion to the Chapter 11 proceedings of a major retail chain, demonstrating both the successful preservation of jobs and brand value through strategic asset sales and the practical limitations of reorganization when administrative costs exceed available resources.
The motion was filed by Morris, Nichols, Arsht & Tunnell LLP as Delaware counsel and Davis Polk & Wardwell LLP as lead counsel for the debtors.
This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 18 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.