Gift Card Bankruptcy

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Bankruptcy is the financial inability of a business to pay their debt when due. There are two main types of corporate bankruptcy in the US, Chapter 7 and Chapter 11. Both types of bankruptcy are bad for gift card holders, however, Chapter 7 is far worse. Unfortunately, federal and state laws are not clear in how gift cards are handled in bankruptcies. It is prudent for consumers to quickly use up any gift cards belonging to businesses that files for bankruptcy.

Contents

[edit] Chapter 7 (Liquidation)

In Chapter 7, the business will begin liquidation of assets to pay creditors. Once liquidation is complete, the corporation will cease to exist. Federal law allows gift card holders to file a claim against the bankruptcy estate to recoup money on their gift cards' remaining balance[1]. There is a decent chance that gift card holders can recover a percentage of the gift card's value among unsecured creditors[2]. However, this is dependent on whether there is any asset left after paying secured creditors.

[edit] Chapter 11 (Reorganization)

Under Chapter 11, corporations can file for temporary protection from creditors. In the process, the corporation can reorganize and restructure their debt with the approval of the bankruptcy court. Most businesses that seek Chapter 11 plan to rehabilitate their business. Federal law allows a corporation to stop honoring store gift cards when it files Chapter 11 bankruptcy[1]. However, if the business' intention is to emerge from bankruptcy and stay in business, then most businesses will ask the bankruptcy court for permission to honor gift cards in an effort to maintain good customer relations.

[edit] Bankruptcy List

  • Bennigan's and Steak & Ale restaurants - Company-owned restaurants all closed. Some independently owned restaurants still operating. Gift Cards still sold in some grocery stores. Check with a Bennigan’s or Steak and Ale restaurant near you to make sure they are still redeeming gift cards (those issued before the bankruptcy and after). Ponderosa and Bonanza restaurants operated by a different division are still accepting gift cards[3].
  • Bombay Company: Declared bankruptcy in Sept. 2007, and shuttered the last of its stores in January.
  • Boscov’s: Filed for Chapter 11 bankruptcy in August 2008 and closed some stores. (Remaining stores sold to a group led by a Boscov family member and they plan to stay in business)[4].
  • Circuit City: Filed Chapter 11 on Nov. 10, 2008 with intention to emerge smaller in size. However, due to the poor 2008 holiday season and failure to find a buyer, Circuit City on Jan. 11, 2009 announced it will close its remaining 567 US stores[4][5].
  • CompUSA: Closed most stores. Now has 23 stores operating in Florida, Texas, North Carolina and Illinois. CompUSA and TigerDirect are now sister companies. Still issuing gift cards. Clarify their gift card policy before buying. Not sure if they are still redeeming old gift cards or only gift cards issued after the bankruptcy by the “New” CompUSA.
  • Eddie Bauer: Filed Chapter 11 on June 17, 2009 and received permission from bankruptcy judge to continue operation while seeking a buyer. Eddie Bauer will continue to honor gift cards during the bankruptcy[6].
  • Goody's: Filed Chapter 11 on Jan. 13, 2009 with intention to close and liquidate remaining 282 stores[4]. This is Goody's second bankruptcy filing in less than a year. Goody is no longer selling gift cards and will continue honoring pre-existing gift cards.
  • Gottschalks: Filed Chapter 11 on Jan. 14 2009 with intention to stay open and seek a buyer or alternative financing[4]. The court granted Gottschalks' request to continue honoring gift cards and store credit while in bankruptcy protection.
  • KB Toys: Filed Chapter 11 on Dec. 11, 2008 with plan to close all stores and begin liquidation[4]. On Jan. 11 2009, gift cards and store credit are no longer honored in stores or on KBToys.com (which is owned by a separate business). However, if the gift card was purchased directly from KBToys.com, then the gift card can be exchanged for an electronic gift certificate good at KBToys.com by completing an online form. Toys R Us is offering a "gift card exchange program" that will exchange KB Toys gift cards for a 15% off coupon[7]. Another option, is to seek reimbursement on any remaining gift card balance by filing a priority proof claim in KB Toy's bankruptcy proceeding.
  • Levitz Furniture: Filed Chapter 11 on Nov. 08, 2007 with plan to continue business operations. One month later Levitz was sold to Hilco Merchant Resources, which in turn closed all remaining 76 stores and liquidated all assets[8]. Gift card holder should file a claim if they haven't already.
  • Fortunoff's:Agreed Feb. 2008, to sell its business to NRDC Equity Partners LLC, which owns the Lord & Taylor department store chain, through a bankruptcy process.

[edit] References

  1. ↑ 1.0 1.1 1.2 Orgel, M (2008-03-03). Not worth the plastic they're printed on. MarketWatch.com. Retrieved on 2009-01-20.
  2. ↑ Marks, N (2008-07). FAQs and Tips on Gift Certificates and Gift Cards. California Dept. of Consumer Affairs. Retrieved on 2009-01-20.
  3. ↑ 3.0 3.1 3.2 Baertlein, L (2008-08-06). U.S. Restaurants See Opportunity as Rivals Bankrupt. Reuters. Retrieved on 2009-01-20.
  4. ↑ 4.0 4.1 4.2 4.3 4.4 4.5 4.6 Baertlein, L (2009-01-14). FACTBOX: Recent retail bankruptcies. Reuters. Retrieved on 2009-01-20.
  5. ↑ Felberbaum, M (2009-01-17). Circuit City to close 567 remaining US stores. The Associated Press. Retrieved on 2009-01-20.
  6. ↑ Eddie Bauer gets court nod to continue operations. BusinessWeek (2009-06-19). Retrieved on 2009-06-20.
  7. ↑ Chang, A (2009-01-12). Shoppers can exchange KB Toys gift cards for discounts at Toys R Us. Los Angeles Times. Retrieved on 2009-01-21.
  8. ↑ Engel, C (2007-12-10). Levitz liquidation sales begin. AllBusiness.com. Retrieved on 2009-01-21.
  9. ↑ Rosebloom, S; Healy, J (2009-05-04). A Final Bargain at Filene’s: The Stores, in Bankruptcy. New York Times. Retrieved on 2009-05-10.
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