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What To Do With Gift Cards to Bankrupt Company?

Posted By Jim On 11/19/2007 @ 2:46 pm In Shopping | 2 Comments

I saw a tip on Consumerist that last Friday was the last day to use gift cards to Bombay because they were being liquidated/going out of business. So what are you supposed to do if you read that post today and find yourself with a Bombay gift card and no actual store to use it in?

Step 1: Determine the Type of Bankruptcy

In the land of second chances, the Chapter 11 bankruptcy is king. Chapter 11 is the reorganization type of bankruptcy (as opposed to the liquidation type, Chapter 7) and that’s good for someone with a gift card. Reorganization means the company wants to stay in business so they’ll usually ask the bankruptcy court for permission to still honor any gift cards and gift certificates. To leave those customers out to dry would not be a good way to conduct business. If you happen to be lucky and get a Chapter 11 banktupcy, I’d spend that gift card as soon as possible.

Step 2: Get In Line

If the judge says no to the request or the bankruptcy is of the Chapter 7 variety, gift card and gift certificate holders become unsecured creditors in the case – lumped in with vendors, shareholders, etc. If you’re familiar with being a creditor, there’s a listing of priorities as to who gets what. First comes the secured creditors, then the priority unsecured creditors, then the general unsecured creditors. Gift card holders are in the priority unsecured creditors group. So, first steps is to file a claim with the court and the place to find more information on that is your state’s Attorney General/Consumer Affairs department.

Another Scenario: Store Acquired

What if, sometimes this happens in bankruptcy and sometimes not, another store acquires your current store? Technically they only have to honor the gift cards if they purchased the obligations of the other store. That being said, with business it’s almost never about the dollars when it comes to customer satisfaction and most will honor the old store’s gift cards. What you figure is that you have a gift card so you’re likely a customer of the acquired store and since the acquiring store wants to continue the business, they probably want to keep existing companies happy. So… you’re probably okay as long as you bring it up quickly (don’t bring an old gift card from an store that was bought out two years ago).

More reasons why I think gift cards are stupid [3]


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