Bankrupt Retailers = Bankrupt Gift Cards

November 24, 2008

Love ’em or hate ’em, retail gift cards have grown more and more popular in recent years. A bit impersonal? Maybe, but they’re convenient, always the right color, and arguably more useful than that medium, out of style reindeer sweater your Aunt Edna gives you each year.

According to the National Retail Federation, around 55% of consumers say they would like to receive a gift card, and nearly two thirds of consumers plan to buy them this season. But what happens to all of those cards when the retailer goes out of business?

The combination of a slumping economy, and gloomy holiday sales forecasts are leading analysts to predict failures of many retailers over the next year. Gift card holders have few rights when a retailer files for bankruptcy because gift card holders are considered unsecured creditors.

If the retailer doesn’t specifically ask the court to allow it to continue accepting gift cards (or if the court denies it), gift card holders must get in line with all the businesses that have claims against the retailer.

That’s bad news for consumers this season as they shop for that ‘perfect gift.’ Consumers Union has petitioned the FTC urging better protections for consumers. In the meantime, Consumers Union suggests giving cash this year instead of gift cards. But if you’re put off by stuffing a 20 in an envelope, choose retailers wisely by considering their financial health. They could be the next Sharper Image, Bombay Company or Circuit City.

Snopes.com has a list of retailers currently in trouble or closing locations.

When you do decide a gift card IS the ‘perfect gift,’ here are a few tips.