How to Redeem Gift Cards in a Bad Economy
What Happens if a Store Files Chapter 11 Bankruptcy Protection?
Nov 25, 2008
In recent years, the popularity of gift cards has skyrocketed, but while the gift of a gift card gives the recipient the ability to select their own gift, there's also potential downsides to this popular holiday gift idea.
The 2008 holiday season came with worldwide economic woes and in light of the difficult financial times, holiday gift recipients are now being encouraged to spend those gift cards as soon as possible to avoid a situation where gift cards are no longer honored when a retail store files for Chapter 11 Bankruptcy Protection.
"When a company files for Chapter 11, federal law does permit retailers to stop honoring gift cards. So that's something we may see if Christmas shoppers purchase gift cards at stores that have already filed Chapter 11 - the gift cards may not be honored after the holiday shopping season. I also expect we'll see a few retailers file Chapter 11 after the holiday season, to avoid a decrease in gift card sales, but this leaves the consumers in a bad position with a gift card that may be worthless," explained economist Michael Bloom in a November 2008 sit-down interview with Suite101.
Some retailers may also put a hold on gift card redemption, which is permissible under federal law.
Redeeming Gift Cards During Tough Economic Times
Bloom offered a few tips for holiday shoppers who purchase a gift card and for gift card recipients, who may be wondering about the best way to redeem a gift card.
- Do your homework. Before setting off on a holiday shopping trip, do a quick internet search to learn if a particular retailer has filed for Chapter 11 Bankruptcy Protection. Some major national retailers that have recently filed for Chapter 11 include Circuit City, Linens N' Things and The Sharper Image.
- Spend gift cards ASAP. It's best to spend a gift card as soon as possible during times of economic instability to avoid ending up with a worthless gift card that cannot be redeemed because a store has gone out of business.
- Consider a Mall Gift Card or American Express Gift Card. Rather than purchasing a gift card for a specific retailer, instead give the gift of an American Express Gift Card, which is good at virtually any store worldwide. Many malls, like Simon Malls (throughout the U.S.) offer gift cards that are good at all mall stores. These types of companies are generally more stable than retailers.
- Read the fine print. Many gift cards have dormancy fees that are deducted from the gift card balance after the card has been inactive for a certain period of time. Some gift cards even have expiration dates, so read the fine print on the gift card to avoid losing value. This varies from state to state, as some states do not allow for gift card expiration dates.
Notably, when a company files for Chapter 11, this does not necessarily mean that a company will be going out of business. Chapter 11 Bankruptcy Protection allows a retailer to restructure in a way that will allow them to remain in business as they pay off creditors and debts.
Some companies do ultimately go out of business, making gift cards worthless. While other companies recover and remain in business for many years after filing for Chapter 11.
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