Gift cards: What to do when retailer files for bankruptcy


If a retailer is on shaky financial ground, use that gift card while you can, experts say.

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As retailers ranging from Toys R Us to The Limited and Gander Mountain file for bankruptcy, shoppers are scrambling to figure out to what to do with their gift cards from those and other stores.

There’s no simple solution, but if a retailer is on shaky financial ground, use your gift card while you can.

For example Toys R Us, which filed for bankruptcy in September 2017 and announced March 15, 2018, that it will close all 735 of the company’s U.S. stores. Gift card holders have until April 15, 2018, to redeem those gift cards.

“I always advise using gift cards as soon as possible because the longer you hold onto a card, the higher probability you will lose the card or simply forget to use it,” says Shelley Hunter, a gift card expert at “When a store files for bankruptcy, the urgency is even greater.”

Hunter’s Bankruptcy Gift Card Watchlist for 2018 has a red stoplight for holders of Toys R Us gift cards and yellow caution stoplights for holders of gift cards from The Walking Company, Bon-Ton and Claire’s stores, three of the  retailers that have filed for bankruptcy so far in 2018.

When a retailer files for bankruptcy, it must seek permission from the court to keep accepting gift cards, Hunter says. “In some cases, permission is granted, but only for a short period of time,” she says. In some cases, you have just days or weeks to use the cards before they lose all value.

Here’s what you can do to help ensure you’re not left with a worthless piece of plastic from a troubled retailer:

Gift cards and bankruptcy: 6 tips

  • Pay attention to the news: Gift cards can lose all value when a retailer declares bankruptcy.
  • Use the card right away: If you have a gift card from a shaky retailer, don’t wait.
  • Save your card purchase and activation receipts: A successor company may want you back as a customer, and honor the card.
  • File a report with your state consumer agency: You could add pressure on the retailer in the bankruptcy case to think of gift card holders.
  • Follow the court case: Bankruptcy judges have sometimes offered gift card holders limited-time redemption options.
  • Initiate a chargeback: If you used a credit card to buy the gift card, it could come to your rescue.

Don’t be left holding the (empty) bag

The first rule: Pay attention to news about your favorite retailers, particularly if you’ve heard rumblings about financial trouble and you have gift cards from any of them.

When a retailer files for bankruptcy, your next move depends on whether a retailer plans to stay in business or to shutter all of its stores.

While Toys R Us gift card holders have until April 15 to redeem those cards, when The Limited shut down its stores and e-commerce site ahead of filing for bankruptcy protection in January, shoppers had no chance to redeem their gift cards.

Pamela Banks, senior policy counsel at Consumers Union, a nonprofit advocacy group, says public outrage from gift-card-bearing consumers who’ve been left “holding the bag” might sway a bankruptcy judge to let a retailer take gift cards.

If you are afraid you may be stuck with a struggling retailer’s gift card, Charles Tatelbaum, a bankruptcy expert at Fort Lauderdale, Florida, law firm Tripp Scott, suggests lodging a complaint with your state’s consumer protection agency, which may be able to apply pressure regarding a bankrupt retailer’s acceptance of gift cards.

The RadioShack gift card case

When RadioShack went through its first bankruptcy in 2015, it stopped taking gift cards. Later that year, state attorneys general from around the U.S. forced the retailer to refund an estimated $46 million to consumers who had remaining balances on their RadioShack gift cards.

A RadioShack gift card holder had one year to file a claim for the money. The court collectively treated the claims as a top priority rather than putting cardholders in line behind major creditors.

The RadioShack case is an unusual one, though. As a rule of thumb, if the court doesn’t authorize acceptance of gift cards, your card is useless at least until the bankruptcy proceedings are over, Banks says.

“You can’t do any transactions with the company. Everything stops,” she says.

Wet Seal gift card redemption deadline


After the online teen apparel retailer Wet Seal filed bankrruptcy in January 2017, gift card holders had only until Feb. 26 to redeem their gift cards.

Banks adds that if a retailer isn’t permitted to honor gift cards during the bankruptcy process, but then emerges successfully from Chapter 11, the reorganized company might accept the cards.

“But the consumer has to stay on top of it and watch what happens and what’s going on with the company,” Banks says.

“I have heard of instances where that has happened,” Banks says. “They’ve reorganized and come out a stronger company and they say, ‘We will honor a gift card.’”

Don’t ‘stand in line with a tin cup’

So, what’s the difference between redeeming a gift card for a retailer that’s filed for Chapter 11 bankruptcy reorganization and is closing some, but not all, of its stores versus a retailer that’s filed for Chapter 7 bankruptcy liquidation and is shutting down all of its stores?

Under the first scenario, a consumer still is able to use a gift card at a retailer’s remaining stores or on its website as long as the bankruptcy court has given the OK, Banks says.

But when a retailer shuts down entirely, Hunter says, pretty much the only option left is to file a claim in bankruptcy court as what’s called an unsecured creditor.

That claim can take months to work its way through the legal system, Hunter says, and might not result in recovering even one penny of value from the gift card.

Why? Secured creditors – such as banks and landlords – get first dibs on a retailer’s leftover assets. Unsecured creditors, including holders of gift cards, are essentially at the back of the pack.

Therefore, holders of gift cards must “stand in line with a tin cup,” Banks says, “and hope and pray that there’s money left over from the secured creditors to pay for their gift cards.”

Save your gift card activation receipts

Sometimes there’s money, she says, and sometimes there’s not.

“I have seen consumers get compensated for gift card claims,” Hunter says, “but the consumer must have proof of ownership of the gift card [such as the card’s activation receipt] and wait for all other creditors to be paid out.”

Hunter notes that the “proof of claim” process has gotten easier for holders of gift cards.

Oftentimes, a retailer will post details about the process on its own website. Also, the specifics will be on the website of a company hired to liquidate a retailer’s assets, as well as on the website of a U.S. Bankruptcy Court.

Here’s an example from Gander Mountain, which filed for bankruptcy in March and has shuttered all of its stores:

When all else fails, seek a chargeback

If, as a gift card holder, you feel as though you’ve exhausted all of the legal options at your disposal, there’s one other way you might be able to get a refund for a retailer’s gift card.

If you bought the gift card with a credit card, Tatelbaum suggests you initiate a chargeback with your credit card issuer.

If someone else bought the gift card for you, suggest that the giver initiate the chargeback, he says.

“You know, you were really generous in giving me this gift card, but they’re bankrupt now,” you can tell the gift giver. “Why don’t you go get your money back?”

How not to be stuck with a useless piece of plastic

Banks recommend buying a prepaid card as a gift instead of a retailer-specific gift card, since a prepaid card can be used at many stores rather than at just one chain of stores.

Also, Banks and Tatelbaum suggest not purchasing gift cards from retailers that are on shaky financial ground.

As an example, Tatelbaum cites Sears and Kmart – sister retailers that are experiencing severe monetary woes.

“To be truthful, I’d be very hesitant right now about buying a gift card from Sears or Kmart,” Tatelbaum says, “because you don’t know what’s going to happen.”

How retailers handled gift cards after declaring bankruptcy in 2017

Bankrutpcy filing
What happenedGift card status
The Limited
January 2017Shuttered all stores and its website ahead of filing.Gift card holders had no chance to redeem cards.
Wet Seal
JanuaryClosed all stores, but Wet Seal website says it’s coming back.Gift cards issued before Jan. 23, 2017, would be honored until stores closed Feb. 26, Wet Seal posted Feb. 15 on Twitter.
Eastern Outfitters
FebruaryOperated Bob’s Stores and Eastern Mountain Sports. U.K. retailer Sports Direct acquired the chain.Sports Direct will honor gift cards that predate the acquisition.
MarchBegan store closing sales at all 140 locations.Said it would honor gift cards while stores remained open.
MarchShuttered all 220 stores, intellectual property sold to Valor.A bankruptcy court ordered limited use of gift cards to first 14 days of going out of business.
MarchPlanned to close 220 of 1,300 stores.Accepted RadioShack gift cards in its stores through April 30, 2017. Effective on the bankruptcy filing date, RadioShack Holiday Reward Gift Cards previously issued with new Sprint line activations would no longer be accepted.
MarchBig-box retailer begins liquidation. Houston-based Stage Stores wins bid in bankruptcy auction to keep 50 Gordmans open.Continues to sell and honor Gordmans gift cards.
Gander Mountain
MarchAnnounced plans to close underperforming stores. In May, Gander Mountain was acquired by Camping World Holdings out of bankruptcy.Gift cards were not being honored during liquidation. Gift card holders had until July 17, 2017 to file a claim in bankruptcy court. New Gander Outdoors stores do not honor Gander Mountain gift cards.
Payless ShoeSource
AprilEmerged from bankruptcy in August.Continues to offer and honor gift cards.
MayBegan process of closing 400 of its 1,179 stores.Received additional financing to continue operations, including honoring gift cards, during restructuring.
JuneChildren’s apparel retailer plans to close some 375 locations.Continues to sell and honor its gift cards.
Cornerstone Apparel
JuneThe parent of teen apparel retailer Papaya Clothing plans to close some locations, according to court filings.Does not offer gift cards now. You can transfer your in-store gift card and store credit into Papaya Points, which is online store credit.
True Religion Apparel
JulyThe denim retailer plans to stay in business but will close some stores.Customers can check gift card balances on website. Gift cards not being sold.
Alfred Angelo
JulyThe bridal shops closed suddenly leaving brides and bridesmaids in a lurch.Gift cards were unable to be used when Alfred Angelo stores and website were shuttered.
JulyThe perfume retailer announced plans to close 64 of its 224 stores during the bankruptcy process.The bankruptcy petition notes gift card sales will continue and that at the filing, debtors estimate that they will have $460,000 in gift card obligations outstanding.
Vitamin World
SeptemberThe health food chain seeks to close at least 50 of around 330 stores while it is in bankruptcy.Sought bankruptcy court permission to honor existing gift cards outstanding that had unredeemed balances of about $275,000 as of July.
Toys R Us
SeptemberPlanned to continue operating its 1,600-plus Toys R Us and Baby R Us stores heading into the holiday shopping season, but it announced in March 2018 that it will close stores and liquidate.Toys R Us gift card holders have until April 15, 2018, to use their give cards, according to the Federal Trade Commission.

See related: Gift card regulations: Fees, expiration limited by U.S. law, 8 ways to get gift cards for less, Rack up extra rewards with gift cards

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