Gift cards might seem like the perfect present for a hard-to-shop-for friend or family member, but they are not without drawbacks. When a store goes out of business, gift cards do, too. With the recent announcement of Bed Bath and Beyond’s bankruptcy and David’s Bridal, this issue is back on shoppers’ minds.
When companies go out of business
Under normal circumstances, gift cards are valid for years – or indefinitely. Federal Trade Commission regulations from 2010 declared that money on a gift card couldn’t expire for at least five years. In Canada, regulations differ by province. However, the situation changes when a business declares bankruptcy.
When you buy a gift card, you essentially give a loan to the company until you redeem the value. When a store files for bankruptcy, payments are frozen, and creditors must file claims to get paid. Gift card holders will, unfortunately, find themselves out of luck or with limited options. This isn’t even up to the business. The court decides whether – and for how long – to accept gift cards.
If you miss the deadline to redeem a gift card, you can file a claim for the card’s value. However, these claims are processed behind the company’s major creditors. So if you see news about a company preparing to file for bankruptcy, use your gift cards immediately.
What to know about gift cards and bankruptcy
Avoid issues with your gift cards by following these tips:
- Before buying a gift card, look into the retailer’s financial condition: If news articles report that a company is on shaky ground, purchasing a gift card from another retailer might be best.
- Check the terms and conditions. A gift card’s terms may allow the card to be used at another business location.
- Purchase gift cards with a credit card, if possible: Your credit card company may be able to help recover money lost if a business goes under. Some retailers, however, require gift cards to be purchased with cash.
- Use gift cards as quickly as possible: While you may have years – or forever – to use the gift card, that doesn’t mean you should wait that long to spend it.
For more information
Read BBB tips on what to do when a company goes out of business
Check out this article on gift card scams.
Visit BBB’s consumer HQ for more consumer tips and information.
