Brand name bankruptcies continue, as Linen ‘N Things, The Sharper Image and Circuit City join the ranks of insolvency. But what happens to those gift cards when a company files Chapter 11? A gift card is a fully paid loan to the company. The card buyer pays up front and receives a promise from the company to deliver a stated value of merchandise or service. In bankruptcy, the gift card holder is a creditor holding a claim equal in amount to the unused value of the card. If the company survives the bankruptcy and reorganizes, it may seek Court approval to honor the gift cards. Or it may not. And the Court might deny the request.
LA Times writer Jerry Hersch says some cards ‘won’t be worth the plastic they are printed on” in his story titled Gift Card Holders May Be Out Of Luck In Retail Bankruptcies. Hirsch tells his readers Consumer Union recommends giving cash instead of gift cards.
