Gift cards are one of the best modern innovations in gift giving. Everybody loves gift cards, and just about everybody buys at least a couple of gift cards per year. However, gift cards are somewhat unique – and there can occasionally be a snag or two in the redemption process that would never occur with any other form of gift.
We’re talking about bankruptcy, of course. Gift cards are issued by retailers in exchange for cash – and can be redeemed by users for their cash value in store goods. But what happens when a retailer declares bankruptcy? Are your gift cards still valid? Can they still be used? Or do they just disappear?
You’ve got questions – and EJ Gift Cards has answers. In this article, we’ll take an in-depth look at gift cards, and how corporate bankruptcy will affect the value of any gift cards you may still be holding onto.
This is definitely a pressing issue – in 2017, there are many retailers such as Sears and K-Mart, J. Crew, Payless, and many others who are struggling to make ends meet, and could be on the verge of bankruptcy. And over the last few years, we’ve seen a number of high-profile retailers go bankrupt. Some of them, including RadioShack and American Apparel, filed for bankruptcy protection twice in under a year.
Times are tough in the modern retail world, and you don’t want to get left in the cold if you’re holding a gift card that suddenly becomes worthless. So take a look at this article, and learn more about what happens when a company goes bankrupt – but you still have one of their gift cards.
What Happens When Retailers Go Bankrupt – And You Still Have A Gift Card
If you’re just looking for the headline, here it is – companies who are undergoing bankruptcy have no obligation to redeem gift cards. If they don’t want to honor your gift card, they don’t have to.
In fact, if the company files for Chapter 7 bankruptcy (liquidation), they will close their doors almost immediately – there won’t even be a chance for you to redeem your card.
If the company in question files for Chapter 11 bankruptcy (reorganization, rather than closure), you could be in luck – you may be able to redeem your gift cards. But in the end, the decision on whether or not to honor gift cards rests on the bankruptcy court, not the retailer.
Now, many companies that sell gift cards will ask judges to allow them to redeem gift cards for a short period of time during bankruptcy – and many judges will allow this as a gesture of good faith to consumers – but these periods of time are usually very brief.
For example, RadioShack gift card holders only had about six weeks to redeem their unused gift cards after the company filed Chapter 11 bankruptcy – after that, they would have to file a claim. Let’s learn more about this process now by going over the basics of using gift cards during bankruptcy
- Your gift card is a loan from the merchant – This makes sense if you think about it. You’re lending the merchant, your money – in exchange for store value that is redeemable somewhere down the line. Essentially, gift cards are a small unsecured loan that you make to a retailer, with the expectation that you can redeem the gift card value at the store.
- This means you are a classified as a “creditor” during bankruptcy – Bankruptcy is the method by which a company or individual’s debts to various creditors is either paid or written off – and you’re a creditor, albeit a very small one.
However, the fact that you’re a creditor means that businesses are under no obligation to redeem your gift cards, as mentioned above. If the bankrupt business in question decides not to honor their gift cards, that’s allowed, because individual gift card owners may go through a bankruptcy claim process to get payment for their “loans”.
- If you miss your chance to redeem a gift card, your only option is to file a claim – If a bankrupt company offers a short gift card redemption window and you miss it, your only chance of getting your money back is filing an official claim against the bankrupt company – just like a larger creditor would.
- The honest truth – you probably won’t see that money again – As a creditor, you’re entitled to some form of payout if a bankrupt company is unable to honor its gift cards. However, due to the way bankruptcy proceedings work, you and your fellow consumers are going to be pretty much at the back of the line when it comes to payouts – you’ll be lucky to get even pennies on the dollar for the value of your card.Corporate creditors and other large creditors are given priority during bankruptcy proceedings, so don’t expect a big payday.
What Should I Do If I Have A Gift Card To A Struggling Merchant?
First of all, it’s almost always a good idea to use or sell a gift card as soon as you get it. Doing so dramatically reduces the chances of you ending up with a useless card. But, sometimes you just hold onto gift cards because you forget about them, or haven’t gotten around to using them.
So you should pay attention to the news. Articles that list companies that are at risk of bankruptcy or are struggling in the modern retail market are good resources to pay attention to. If you find out you have a gift card to a retailer that is struggling to make ends meet, you should do the following 3 things.
- Stop buying new gift cards from that store immediately – The first thing you should do is stop buying gift cards from that retailer, even if they have not yet filed for bankruptcy. As mentioned above, there’s a good chance you could lose all the money you spend on gift cards once bankruptcy proceedings start, so there’s no reason to risk that.Part of this is because some retailers, in the past, have accepted and sold gift cards all the way through the bankruptcy process. Textile retailers Linens ‘N Things did so famously in 2008. They filed for chapter 11 bankruptcy, and were allowed to keep accepting gift cards (and selling them!) all the way until the new holding company took over the store. Once that happened, consumers who had bought the old Linens ‘N Things gift cards were told that they were no longer valid – and lost all of the money they spent on gift cards.
- Use your cards ASAP – If you have gift cards to a retailer that’s filing for bankruptcy or may be at risk of doing so, you need to use them as soon as possible. Using a gift card before bankruptcy proceedings start is the only way to be totally sure that you can make use of its full value. If you wait too long, you could lose all the money on the card – and have no way to get it back.
- Warn others – Most people are totally unaware of how the bankruptcy process affects gift card redemption. They may just assume (wrongly) that they are protected, and can turn in their gift cards for cash, or spend them at the new store in case of a Chapter 11 bankruptcy.Tell your friends, family, coworkers – anyone who may have a gift card to a closing store – about what you know, and let them know that it’s in their best interest to avoid buying gift cards from that store, and to spend any remaining balances they may have – ASAP.
How To Spend Gift Cards at Struggling Retailers
If you have gift cards to struggling retailers, you should get rid of them immediately. However, it can be kind of hard to think of ways to spend that gift card balance – especially if you have a card to a store that you don’t usually go to. You can always sell these cards at sites like EJ Gift Cards, but if you want to spend the balance, here are some good ways you can do so.
- Spend Your Balances As You Normally Would – Just go to the store, look around, and see what catches your eye. This isn’t exactly groundbreaking advice, but sometimes all it takes is to go to a retailer and take a look around – you’re sure to see something worth buying. Department stores are a great example of this. The products on offer are so diverse that you’re certain to find something you need, as long as you are willing to make the trip to the store.
- Buy Gifts For Others – Why not turn your gift card into gifts? You can spend your gift card balances into gifts for other people. This is especially handy if you’re stuck with some gift cards to places you don’t usually go to – maybe you’re not tech-savvy, but have a gift card to a struggling electronics store. Consider buying some gifts for friends and family with the balance – it’s better than losing it!
- Buy Supplies For Charitable Organizations – If you don’t have anything you need, and you don’t want to spend your balances on gifts for others, consider using them to get a tax write-off – and do some good in the process. If you use your gift card balances to buy supplies for a charitable organization, your donation will be tax-deductible. Any product you can buy that would be usable by a charitable organization in their day-to-day work could qualify for a tax deduction.
It’s important to note that you shouldn’t just pass off the gift card to these organizations – if they’re unaware that the company in question is struggling, they could lose the balance during bankruptcy procedures. Spend it yourself, and donate the products you buy.
- Stock Up On The Basics – It may be boring to spend a $50 gift card on a bunch of batteries, duct tape, Band-Aids, or other basic, everyday supplies – but it’s better than losing the value of your card. If you don’t need anything special, consider spending your gift card on everyday necessities – it’s better than losing the value of your card if the company in question goes under.
- Sell Your Gift Card Online – You can always sell unwanted gift cards online through gift card buyers like EJ Gift Cards. If the company in question is struggling, the cash value offer you get may reflect that – but if you really want cash, this is a great way to get it.
There you have it! If you follow these 5 tips, you can easily spend or sell the gift cards you have – and make sure that you don’t get screwed over by a surprise bankruptcy. And that’s a good thing, indeed.
Sell Your Unwanted Gift Cards At EJ Gift Cards
Corporate bankruptcies are one of the biggest reasons that you shouldn’t hold onto your unwanted gift cards. The cards could lose their entire value overnight – and even if you don’t need the card itself, you won’t want to miss out on redeeming it for at least part of its value.
So don’t hold onto the cards you don’t need. Sell them at EJ Gift Cards today. We offer payments for hundreds of cards through PayPal, and we offer competitive rates on all major gift cards – including those from retailers who may have seen better days.
Don’t wait. Don’t delay. Don’t risk losing your gift card balance to bankruptcy. Sell your gift cards today with EJ Gift Cards, and you’ll enjoy peace of mind – as well as quite a bit of cash in your pocket.
