Retailer gift cards are one of the most popular gifts in the United States. When a retailer goes bankrupt, however, customers holding gift cards could be told to get in line with the rest of the company’s creditors. While there are no set rules about what happens to gift cards in the event of a bankruptcy, previous cases show that the picture is not always bleak.
The research note examines four major retailer bankruptcies and evaluates how gift card holders fared in each one. The analysis considers how gift card programs can be affected by bankruptcies both of their own issuer and of their rivals.
"Gift card issuers should consider the value of their gift card programs in the best and worst case scenarios and plan ahead to maximize that value for their card holders and their companies," says the director of Prepaid Advisory Service, and author of the report.
Highlights of the report include:
- Two recent retailer bankruptcies with different results for gift card holders, one asking for continued redemption of gift cards and the other allowing customers to exchange the cards for cash
- Reasons for retailers to think ahead about how bankruptcies would affect their gift card program
- Bankruptcy courts’ inconsistent rulings
- The reason why honoring gift cards in a liquidation is good business sense