Gift Card Nightmare: When the gift card issuer goes bankrupt

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Remember that $100 gift card you are still holding on to? What if you find out tomorrow that the gift card issuer is going out of business? What would happen to your card? Would you still be able to redeem it?

Consumers holding gift cards issued by The Sharper Image were given a rude awakening when the company suspended the redemption of gift cards and certificates after it filed for Chapter 11 bankruptcy protection last week. According to a story by the Consumerist blog, some gift card holders were having trouble redeeming their gift cards online and when they called customer service, they were informed of the suspension.

A similar situation happened when The Bombay Company filed for Chapter 11 in September, 2007. The company was ordered by the bankruptcy court to suspend the redemption of gift cards and certificates.

So, what can you do in this situation? Your options are not very promising. One thing is certain; you are probably not going to get all your money back. You will even be lucky to get something back. This is because among the list of the company’s creditors, gift card holders are unsecured creditors and according to the way the bankruptcy process works, unsecured creditors are very low in priority when it comes to the order by which creditors are paid.

The company will probably issue instructions to gift card and certificate holders to file a claim against the company’s bankruptcy estate. This may take several months, if not a year to sort itself out. But all is not lost. Companies that file for Chapter 11 plan to reorganize and stay in business and one would hope that the last people they would want to treat badly are their existing customers.

One interesting and confusing fact is that some states (e.g. MN, CA and WA) have laws that require gift card issuers to continue to accept gift cards that were issued before the bankruptcy was filed. But it appears that with both The Bombay Company and The Sharper Image, federal law took precedence. Consult your state’s attorney general’s office to get clarification on this.

So, what can you learn from this experience? Keep your eyes and ears wide open when purchasing a gift card. Avoid purchasing a gift card from a company struggling to stay in business. However, do not drive yourself crazy in the process. While what happened to customers of The Sharper Image is unfortunate, it should be noted that bankruptcy is more the exception than the norm.

Do you currently hold a Sharper Image or Bombay Company Gift Card? We would like to hear from you. Share your story with us below.

CATEGORIES: Bankruptcy & Gift Cards

6 Comments

  • Emme says:

    $200….down the tubes! AND, I might even be MORE bummed about the closing of the store because I bought almost all my furniture there. What a deal it was! Guess it wasn’t a deal after all, since I’m ripped $200 in the end! :(

  • sandra says:

    I have a $250 from sharper image that my mother gave me and I cannot use it! I can’t get a hold of the company or anything….what do I do?

  • GiftCardBlogger™ says:

    Sandra, The Sharper Image went bankrupt and I believe all their assets have been liquidated. Sorry, but there is not much you can do to redeem the card now. You could have filed a claim with the bankruptcy court while they were going through the liquidation process but I am sure that time frame has elapsed.

  • Jane says:

    Bought a 50 dollar gift car from Mervyn’s in the fall along with her Christmas gift (early buyer) and, of course put the card in the box and wrapped it, not knowing at the time, that that particular store would be going out of business. Now she can’t seem to redeem it and I am out the money and she is out her gift. Is there anything that can be done???

  • GiftCardBlogger™ says:

    Jane, Mervyn’s did redeem gift cards during the bankruptcy so there was a window of time when you could have used the card (see this article – http://www.giftcardblogger.com/mervyns-files-for-bankruptcy-protection-will-honor-existing-gift-cards/).

    Now that they have closed all stores, I don’t think you have any option left. I guess you could file a claim with the bankruptcy court but since you missed the window during the bankruptcy to redeem your card, I don’t know if that will be a viable option.

  • Diz says:

    I have a Ponderosa Steakhouse card , any ideas on how to use it?

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