Gift Cards in Bankruptcy
What Happens to Gift Cards When a Store Goes Bankrupt
When a retailer files for bankruptcy, gift cards issued by the store usually become unsecured claims. This means cardholders may not get the full value of the card back, and the ability to use the card depends on the bankruptcy court or the creditors.
If the retailer keeps operating as a "debtor in possession" during a Chapter 11 bankruptcy, the court may, allow the business to keep selling and honoring both pre- and postpetition gift cards at its discretion. However, in many cases, those cards become part of the settlement pool, and cardholders end up as unsecured creditors.
What should a cardholder do first? The bankruptcy court's website is the first resource. There, you can find official notices with a deadline for filing an unsecured-claim proof if necessary. The U.S. Courts' official proof-of-claim Form 410 asks for the specific unsecured-claim amount.
Gift-card federal protections still apply, even in bankruptcy. The CARD Act of 2009 requires stores and issuers to disclose expiration dates and fees, and at most, the underlying card balance cannot expire before five years from the last load of funds. That minimum 5-year expiration period applies to both physical and digital gift cards. However, the CARD Act protections only set the floor for when funds can expire — in bankruptcy, all claims compete as unsecured claims to receive partial payment of the claims.
Keep in mind that in bankruptcy, an unsecured claim cannot be fulfilled simply through the gift card itself. The claim must be filed through the appropriate court procedure. Gift card rules don't override the obligations of filing in bankruptcy.
What if the court does let the store continue to honor gift cards? Check the case's court notice for any specific instructions, since keeping the cards isn't mandatory. If the retailer does continue to sell new cards, the court may require segregating a portion of the sales proceeds into the bankruptcy settlement pool. So, honoring customers' prepetition cards still may not guarantee that the store stays open or that creditors receive payment.
No one wants to be left holding a worthless card, but bankruptcy proceedings can leave you with little choice.
