LoveSac files for Chapter 11

The LoveSac beanbag company hit rock bottom Wednesday when it filed for bankruptcy, seeking protection from creditors.

The Salt Lake City-based company, its franchising arm and two affiliates have filed for Chapter 11 bankruptcy. Thirty of the largest unsecured claims for goods and services total $3.2 million.

Company officials did not return phone calls asking for comment.

LoveSac grew from U alumnus Shawn Nelson’s garage to a company with more than 60 stores in the United States, Canada and Australia.

Nelson founded the company in 1998, branched out to similar modular sofas and last year won a U.S. patent for packaged furniture assembly. LoveSac expected profits to double from 2004’s $25 million in sales to $50 million in 2005.

It is unclear what the immediate effect of the bankruptcy filing will be on LoveSac’s retail outlets.

Chapter 11 companies are not required to sell off all assets to pay creditors. Typically, businesses that file under Chapter 11 of the U.S. bankruptcy code don’t repay all their debt.

Nelson won $1 million on the reality TV show contest “Rebel Billionaire: Branson’s Quest for the Best” last year, beating out 16 other contestants.

Nelson also won an apprenticeship with British billionaire and entrepreneur Sir Richard Branson, head of the Virgin Group of companies, which includes Virgin Records and Virgin Airlines.

Patrick Muir