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I received the following email today and I suspect that you may have also received a copy, either recently or last year when it was sent out. Or the year before. Regardless of how old the email is I thought that in these uncertain times it might be necessary to dispel a few bankruptcy and gift card myths.

The text of the email that I received:

I wanted to give everyone a heads up that if you tend to give gift cards around the holidays, you need to be careful that the cards will be honored after the holidays. Stores that are planning to close after Christmas are still selling the cards through the holidays even though the cards will be worthless January 1. There is no law preventing them from doing this. On the contrary, it is referred to as ‘Bankrupcy Planning). Below is a partial list of stores that you need to be cautious about.

Here is the list of the stores. As mentioned, the email going around is at least a year old so I have updated and corrected the information contained in the email regarding that status of store closures. As you’ll see, most of the listed companies closed either a few dozen of their hundreds of stores or have already gone out of business completely.

Circuit City (November 2008 filed Chapter 11)
Linens and Things (Chapter 11 May 2008, closing all stores)
Home Depot (closed 15 stores May 2008);
GAP (closed 85 stores in 2008);
Macys (closed 11 stores in early 2008);
Ann Taylor- (closed 117 stores January 2008);
Movie Galley (Closed 900 stores and emerged from bankruptcy in May 2008. Is operating normally);
Eddie Bauer (closed 27 stores January 2008);
Wilson Leather (closed 160 of its 260 stores);
Zales (closed 105 stores and kiosks in January 2008);
Footlocker (closed 330 stores in 2007 and early 2008);
Disney (closed 98 stores in 2008);
Pep Boys(closed 33 stores in 2007);
Sprint/Nextel (closed 133 stores in January 2008);
Ethan Allen (closed 12 stores in 2008);
Dillard’s (to close some stores);
KB Toys (closed 356 stores in 2005);
Cache (closed 14 of 295 stores in 2008);
Piercing Pagoda (closing some stores);
Pacific Sunwear (closing some of its stores);
Talbots (closed 28 stores in 2008);
J. Jill (to be sold by Talbots);
Wickes Furniture (filed for chapter 11 in February 2008. All stores have closed);
Levitz (filed for Chapter 11 in November 2007, is in the process of closing all stores and liquidating its remaining inventory);
Bombay (filed for Chapter 11 in September 2007, all stores have closed);
Whitehall (filed Chapter 11 protection June 2008 and is closing all stores);
Sharper Image (all stores have closed);

So, that KB Toys down the street from you? Yeah, it closed three years ago. Don’t buy a gift card from them.

In all seriousness however, these store closures and financially troubled companies can basically be broken down into the following groups:

Group 1: Have not filed and do not intend to file Chapter 11, but are closing some stores (e.g. GAP and Home Depot). These are mostly nationally known companies. They are not in Chapter 11 bankruptcy protection but they have closed some of their underperforming stores. They might close more in the future. These stores are contractually obligated to honor your gift cards pursuant to the terms set forth in the gift card agreement which you didn’t read. Recommendation: Ask the salesperson if the gift card that you are purchasing can be redeemed at all of that company’s stores. If they say yes then you should have no reason to fear purchasing a gift card from the GAP, Home Depot or most of the stores on the above list.

Group 2: Have filed for Chapter 11 bankruptcy, is closing some stores, but intends to reorganize and remain in business (e.g. Circuit City). In Groups 2 and 3, things change on a company by company basis depending upon when you bought your gift card and the company’s plans for the future.

  • Recommendation: If you bought your gift card before the company filed for bankruptcy the company is not obligated to honor your gift card. In many cases however the company will ask the bankruptcy judge for authority to honor that gift card in order to keep customers loyal. I suspect that Circuit City is honoring their gift cards. Even so, it might be wise to use any cards that you currently have.
  • Recommendation: If you bought your gift card after a company files for bankruptcy and they are still operating then the company is required to honor that gift card as if no bankruptcy has occurred. If you go buy a Circuit City gift card today, they will be required to honor it.

    Group 3: Have filed for Chapter 11 bankruptcy protection and intends to liquidate(e.g. Linens and Things). Linens and Things filed for Chapter 11 in May 2008 and said in October that it is closing all stores. I doubt that Linens and Things is even selling gift cards anymore.

    Above, I said that Circuit City is obligated to honor the gift cards which you purchase today. Depending upon how Circuit City’s reorganization proceeds, they may eventually decide to liquidate like Linens ‘n Things. In that event, they may not be required to honor any of their gift cards. It probably won’t come to that, but you should be aware of it.

    Group 4: (e.g. Piercing Pagoda) Seriously? Regardless of financial situation why are you buying anyone a gift card from Piercing Pagoda?