Christmas, Chanukah, Kwanza: they're right around the corner, and so are the cards. Colorful holiday greeting cards will adorn your mantel, and, more than likely, in your wallet will be a little stash of colorful merchant gift cards that you received as holiday presents.
It's funny, as a bankruptcy attorney in Indiana for so many years, I usually find myself urging people to save, not spend. You'll usually hear me preaching about putting off purchases and making payments on debt instead. This post-holiday season though, when it comes to gift cards, I'm singing a different tune. That's because, with corporate bankruptcies on the rise, if you don't redeem your gift cards for merchandise--and quickly--you could find yourself out of luck. Just the other day I was driving to an appointment and there was a giant sign over the Linens 'n Things store, informing the public the store was closing. In fact, Linens 'n Things is just one of many retail chains to file bankruptcy in recent months.
Last holiday season it was The Sharper Image gift cards. Tens of thousands of people showed up in person or online, expecting to use their gift cards to acquire the latest in exercise equipment, massage chairs,or an electronic gadget they'd been wanting. However, no dice. Following the company's bankruptcy, Sharper Image cards became worthless pieces of plastic. (Talk about post-holiday "magic" of the wrong kind!) Similar stories emerged about Bombay & Company and Levitz furniture store gift cards.
More than a dozen U.S. retailers have filed Chapter 11 bankruptcy so far this year, and other well-known retail names have begun the process of closing up shop, including Shoe Pavilion, Whitehall Jewelers, Mervyn's, Lillian Vernon, Hollywood Video, Steve & Barry's, and most recently, Circuit City. But don't blame your friend or family member for buying you a card from one of those stores. Until a bankruptcy or closing is actually announced, there's no way for the gift card buyer to know the company's in trouble--Sharper Image was selling gift cards right up to the time they filed bankruptcy!
Can you see why, this December, I want to urge gift card recipients to use them while there's still time? Before our economy recovers from its current downturn, I'm sure there will be many more retailers going out of business. In fact, the number of retailer bankruptcies this year is expected to reach the highest level in two decades, putting almost $100 million worth of gift cards at risk. That represents only a small part of the $50 billion worth of gift cards Americans buy each year from retailers (and half of these purchases happen around the winter holidays), but if it's your gift card that becomes worthless, I'm sure it'll be a big deal to you!
To give you a little peek behind the scenes based on my professional expertise, when a company has filed bankruptcy, that company might not be able to honor your gift card, even though your friend or relative paid the company real money to buy it for you. With mounting financial problems, a company heading towards bankruptcy was probably unable to keep merchandise or cash in reserve to redeem gift cards. What's more, the bankruptcy court may not allow a retailer to honor gift cards, deciding other creditors need to be paid first.
It's really too bad, because in healthier economic times, gift cards seemed the perfect solution for everyone. Friends don't need to wrestle with the problem of predicting your preferences. You don't unwrap a beautiful package only to find a sweater in the wrong size or a blouse in a color you detest. Merchants love gift cards, too--they provide instant cash flow weeks or months before purchases actually take place. The concept is brilliant, so long as the merchant stays around!
All this urgency to cash in gift cards doesn't apply, of course, to mall cards (that you can use at any of the stores in the mall) or general gift cards from VISA or American Express. Those can usually (check for expiration dates) remain safely in your wallet until you're good and ready to "buy yourself" your holiday gifts from friends and family. And having fairly warned you about individual retailer gift cards, I can put my bankruptcy attorney hat back on, urging you to pay your bills before you set out on that shopping spree!
