Movie Gallery To Liquidate In BankruptcyMovie Gallery Inc. the operator of the Hollywood Video rental chain has filed a plan with a federal bankruptcy court to liquidate its operations and shut down. The move comes five months after Movie Gallery filed for Chapter 11 bankruptcy for the second time in three years.  Initially, Movie Gallery had planned to use Chapter 11 bankruptcy to close one-third of its 2,415 U.S. stores and continue operating; but recently decided to liquidate in bankruptcy after defaulting on a loan.

According to the plan filed Tuesday evening, unsecured creditors will obtain “some recovery” on their claims, even though “many” secured creditors, whose claims are more senior, “will not be paid in full.”

A disclosure statement, which typically details the size of expected recoveries, has yet to be filed with the court.

Movie Gallery suffered plummeting sales and operating losses after suffering stiff competition from mail-order and kiosk movie rental companies such as Netflix and Redbox.  But even after filing Chapter 11 bankruptcy twice in the past three years the movie rental company was not able to survive and compete effectively.  Since the company has decided to liquidate their assets in bankruptcy and shut down operations, all of their assets will be sold and the proceeds will be used to repay creditors.  As has been suggested, many of the company’s secured creditors will not receive full payment even while their unsecured creditors recoup at least some of their losses.  But because the disclosure statement has not been released the details of how creditors will be paid is still a mystery.