Published by Mark

Got A Gift From A Bankrupt Retailer? Get In Line!

December 9, 2008 at 12:54 pm

Bankruptcy lawyers usually find themselves telling their clients to defer buying and to pay bills and save as much as possible. For the first time this fall, though, I’ve been focused on warning folks to go ahead and use any gift cards they’ve received, or which they might receive this month during the holidays. I’m also warning everyone to buy gifts, not gift cards this season. In my earlier bankruptcy blog, In Bankruptcy, Gift Card Holders In Back Of Line With Airline Ticket Holders, I explained why. With so many retailers filing bankruptcy, many gift cards will become worthless. The bankruptcy court considers card holders to be unsecured creditors, last in line when it comes to claiming cash or merchandise from the bankrupt retailer.

The latest big retailer to fall was Circuit City, but I’ve been writing about Linens ‘N Things’ closing as well. Many retail companies are trying to remain open through the holiday season, but quite a number of them are predicted to close in the early part of next year. In women’s clothing, some of the big names rumored to be closing large numbers of stores are Ann Taylor, Lane Bryant, Fashion Bug, and Catherine’s. Department stores that are rumored to be going out of business, or at least planning to close many of their stores include Eddie Bauer, J.C. Penny, Lowes, and Dillard’s. Specialty retailers in the same boat include KB Toys, Ethan Allen, and Wilson Leather. Every one of these retailers issues gift cards, and at least some of those gift cards could become unredeemable if the company were to file a bankruptcy and the bankruptcy court orders assets to go towards paying secured creditors first.

I certainly don’t want to play Scrooge here. Under normal circumstances, gift cards represent a good deal for merchants, gift card buyers, and recipients of this flexible form of gift. But in the present economic crunch, it makes sense to turn in the plastic you’ve received for the real thing even before you sit down to write the thank you notes.

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