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Linens ‘n Things May Declare Bankruptcy, Don’t Hold Gift Cards!

It took a while but LNT is liquidating its remaining stores [3] as of October 14th, 2008.

Linen ‘n Things has filed for Chapter 11 bankruptcy [4], freezing $42M in gift cards.

We received many gift cards as wedding gifts (thanks!) and fortunately none of them were Linens ‘n Things cards because they’ll be filing for bankruptcy tomorrow [5] ($15 million quarterly payment is due!). What does this mean for gift card holders? There is a possibility that Linens, as Sharper Image did, will suspend the acceptance of gift cards [6] and anyone holding one will be left with nothing. Gift card holders are considered unsecured creditors during bankruptcy, which puts them after secured creditors and thus less likely to receive anything. You didn’t think you were lending a company money when you bought it, huh? 🙂

America has spent the last twenty five years in a state of heightened consumerism, with relatively few retailer busts. The probability that you could have a gift card from a publicly traded company go worthless was pretty slim. Suddenly, you have Bombay bust last year, followed by Sharper Image, and you start seeing that the little spending train we’ve been riding is starting to slow down and the risk of a gift card becoming worthless plastic go up. To be honest, I had no idea Sharper Image went under (though I never understood how they kept afloat, those gadgets were cool but expensive and hardly ever “necessary”) until long after they were liquidating. (anyone else with me?) Who has time to keep track of that? I don’t, I’d guess you don’t either.

So, the lesson of the day is to spend down those gift cards as soon as possible. We have gift cards from places like Macy’s and Bed Bath & Beyond (which is a store just like Linens ‘n Things), and while the future looks good for them (honestly, we have no idea how the future looks for them, it’s not like Linens ‘n Things was visibly struggling) you never know what can happen.

Need another reason to not like gift cards [7]? This seems like a pretty strong one. Cash doesn’t expire and if the US Government ever declares bankruptcy, the least of your worries will be what Federal Reserve Note gets you in bankruptcy proceedings.

If anyone is currently working at LNT and would like to write about their experience, please contact me [8], thanks!