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Retailer Bankruptcies: Are Gift Card Holders Just Another Class of Creditor

Are gift card holders out of luck if a retailer goes bankrupt? 

Research from Mercator Advisory Group examines what happens when gift card issuers go bankrupt.

 The research note entitled Retailer Bankruptcies: Are Gift Card Holders Just Another Class of Creditor looks at four cases of retailer bankruptcy and reviews what happened to gift cards in each case.

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.

Mercator Advisory Group’s 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," Ben Jackson, director of Mercator Advisory Group's Prepaid Advisory Service, and author of the research note, comments.

Companies mentioned in this document: Borders, Brookstone, RadioShack, Sharper Image, Sports Authority, and TSA Stores.

Highlights of the research note 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