What Happens to Your Gift Cards When a Company Goes Bankrupt?

Have you ever gone through your kitchen junk drawer looking for a pen or something else and found your hands filled with gift cards you forgot you even had?

With more and more people giving gift cards as gifts for a variety of reasons,  people are finding themselves in possession of gift cards they'd forgotten about to stores that are either going through bankruptcy or that have completely closed.

Until recently, there wasn't much a consumer could do if they were in possession of a gift card and unable to use it. However, thanks to several new class action lawsuits, that could all change.

According to the Wall Street Journal, consumers are speaking up and challenging stores such as Lord & Taylor, Sur La Table, Stein Mart, and Century 21 over standing policies which state gift cards are unusable while those stores are going through bankruptcy proceedings.

Lawyers representing consumers argue that retailers are in the wrong for not giving adequate information to consumers about bankruptcy gift card expirations which means that shoppers are missing the opportunity to use their gift cards because they aren't clear on when the cards expire.

On the flip side, retailers argue that under current bankruptcy laws, there is nothing that states the retailer going through proceedings are legally obligated to honor gift cards and they don't believe that they should have to start now. And it makes sense that retailers would feel this way because retailers are sitting on stacks of money in the form of unused gift cards.

According to its August bankruptcy filing, Lord & Taylor stands to gain $35.5 million dollars in unspent gift cards. Additionally, when Pier 1 Imports filed for bankruptcy in February it reported that it had around $59 million dollars in unused gift cards.

While the mess of what to do with gift cards when a company files for bankruptcy sits in the hands of the courts, experts advise consumers not to hold onto a gift card for a retailer that has filed for bankruptcy. They say that instead to use the gift card quickly.

Ted Rossman, industry analyst at CreditCards.com and Bankrate told Cashay, "This is the time you want to spend as soon as possible. Gift card values don’t appreciate over time plus inflation can eat away at the value. Once you receive a gift card— even if the store is stable, use it."

So, the answer to the question, "what happens to your gift cards when a company goes bankrupt?" is that unless the laws change, you're pretty much out of luck and should use up whatever gift cards you have in your possession now. If you think retailers aren't making off like bandits by way of unused gift cards, think again.  Mercator Advisory Group told the Wall Street Journal that, "roughly $2 billion to $4 billion, or up to 4%, of gift cards" generally go unused each year in the United States.