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What happens to gift cards after a retailer files bankruptcy?

Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “What is Chapter 11 Bankruptcy?”

 

Gift cards are increasingly popular choices for birthdays and holidays. After all, you put money on a card and the recipient can then spend that however and whenever he or she chooses. Not so fast. If a retailer files bankruptcy, your ability to spend that money may disappear. Keep reading to find out more about what happens to consumers after a retailer files for bankruptcy protection.

 

Giftcard Charlotte Debt Lawyer Mecklenburg Bankruptcy AttorneyThese days bankruptcy is not an uncommon result for even major national retailers. American Apparel, Wet Seal and RadioShack have all filed for bankruptcy protection within the last few months. When the companies finally decide to file, things happen fast. Generally a bankruptcy announcement hits the news as the papers are filed, with companies not wanting to tip off creditors and investors until the deed has been done. As a result, it can be difficult if not impossible for consumers to take action to protect themselves until it is already too late.

 

What can happen?

 

When a company files for bankruptcy, there are several options available to them when it comes to handling gift cards that are already in circulation. One possibility is that the gift cards are immediately rendered useless and cannot be redeemed. Another option is that companies can petition the bankruptcy trustee to allow gift cards to continue to be redeemed. Yet another possibility is that the stores ask that gift cards continue to be redeemed, but either for a limited value or for a limited amount of time.

 

Chapter 7 vs. Chapter 11

 

Exactly which avenue the company decides to pursue often depends on what type of bankruptcy is undertaken, either a Chapter 7 or a Chapter 11. Under a Chapter 7, companies intend to close and liquidate their assets to pay off creditors. If that’s the case, it is unlikely that gift cards will continue to be redeemed. However, those that enter into a Chapter 11 may still allow the redemption of gift cards, as they are attempting to reorganize and continue operating. By allowing gift cards to continue to be redeemed, they avoid angering customers and will hopefully emerge from the Chapter 11 with a better chance of survival than if they had refused to honor the gift cards.

 

Act fast

 

Even if the store has only filed for Chapter 11, the reality is that a Chapter 11 can quickly turn into a Chapter 7 if the company’s financial condition continues to deteriorate. If the store is currently allowing customers to redeem gift cards, act fast. Get in the door as soon as possible and spend the money while you still can. Better that than be left with a worthless piece of plastic.

 

Can you take the companies to court?

 

Absolutely. When a consumer purchases a gift card, he or she is essentially extending an unsecured loan to the company until the full value of the card has been redeemed. As a result, consumers are able to file a claim against the assets of the company with the bankruptcy court if the company has stopped redeeming gift cards. You are able to file a claim just like any other creditor. That being said, gift cards are unsecured debts and, as such, fall at the bottom of the list when it comes to deciding who gets repaid, so don’t be surprised if you end up walking away with little or nothing.

 

If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with the best advice for your particular situation.

 

 

About the Author

Bryan 1Bryan Stone is a Partner with Arnold & Smith, PLLC, where he focuses his practice on all aspects of bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.

A native of Macon, Georgia, Mr. Stone attended the University of Georgia, where he earned a BBA in Banking and Finance, and Wake Forest University School of Law, where he obtained his law degree.

Following law school, Mr. Stone relocated to Charlotte, where he currently serves as Chair of “Bravo!” – a young professionals organization associated with Opera Carolina – and founded the University of Georgia Alumni Association of Charlotte.

In his spare time, Mr. Stone enjoys perfecting his barbeque skills for the annual “Q-City BBQ Championship” and playing softball in the Mecklenburg County Bar softball league.

 

 

Sources:

http://blogs.wsj.com/bankruptcy/2015/07/27/is-bankruptcy-unfair-to-shoppers/ 

 

 

Image Credit:

http://www.freeimages.com/photo/bow-2-1420756 

 

 

See Our Related Video from our YouTube channel:

http://www.youtube.com/user/ArnoldSmithPLLC?feature=watch

 

 

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