So you've just discovered that your favorite retail store has filed for bankruptcy and you still have an unused gift card? Keep reading to learn how a retailer's bankruptcy impacts your gift card and what you can do about it.

In my wallet right now, I have gift cards to a major retailer, a locally owned coffee shop, and a chain restaurant. I’m sure I have a few more gift cards floating around my house as well. Just a few weeks ago, I found a gift card to a Borders bookstore in a junk drawer at home.

When Borders emptied its shelves, it left the holders of $211 million in gift cards without a place to use those cards (including me!).

$211 million!

But you may think, I’m safe. The retailer won’t close. Think again.

Already in 2017, retailers like h.h. Gregg and The Limited have closed all their stores. Other stores, like Payless Shoes and, more recently, Gymboree have entered into bankruptcy and have announced that many of their stores will close.To protect yourself from losing the value on your gift card, here is some helpful information about gift cards and bankruptcy.

Gift cards and bankruptcy

It's important to understand a little about the bankruptcy process: When the bankruptcy is filed, the debtor (like Gymboree, for example) loses the ability to accept outstanding gift cards because they are pre-petition obligations to creditors (you, the customer). In order to keep good will and their loyal customers, the bankruptcy retailer (in a chapter 11) will seek the court's approval to continue to accept the retailer's pre-bankruptcy gift cards. That’s exactly what Gymboree did (and the court, at least temporarily, allowed the continued acceptance of pre-bankruptcy gift cards).

But that temporary allowance could change.

(And if the retailer filed a chapter 7, the store would have immediately ceased operation and your options are severely limited.)

So what is a customer to do?

Shop

Find something you need or buy an early Christmas present or buy something you can donate, but gift cards are not an investment. Use it or lose it.

If the court (like in the case of Gymboree) is offering a window of time where gift cards will be accepted, you should take advantage of that opportunity. We don't have a magic 8 ball that will tell the future of any retailer so it's best to use the gift card.

In fact, this is probably good advice for gift cards whether there is a bankruptcy involved or not.

File a Proof of Claim

A proof of claim is a document filed in a bankruptcy case by a creditor that proves that a claim exists and is owed by the debtor. Filing a proof of claim, however, doesn't guarantee payment.

If you have a gift card from a company that has filed for bankruptcy and the gift card can no longer be utilized, you can file a proof of claim to be added as an unsecured creditor. That class of creditors isn't a priority for payment and, if there is a payment, it can be only a few cents on the dollar and can take years before you'll receive any money.

Procedures for filing claims vary depending on the bankruptcy case itself and there is usually a deadline by which claims must be filed if they are going to be allowed.

Bottom line?

How can you avoid having a valueless gift card from a bankrupt retailer? Try to avoid the situation altogether.

If you receive a gift card, use the gift card.

Or you might lose it.

The information contained in this post is for general information only and is not to be considered legal advice. If you have a specific legal question, you should contact an attorney to determine what course of action is right for you.