Claim: E-mail urges consumers to redeem gift cards issued by companies that have recently filed for bankruptcy.
Example:[Collected via e-mail, April 2008]
The following companies just filed for Bankruptcy:
Hollywood Video
Levitz
Sharper Image
Linens n Things
Circuit City
If you have gift cards from the above list use them ASAP, they will not be valid for much longer.
PASS THE WORD.
Origins: The increasing market for retail store gift cards (estimated to reach $100 billion in 2008) may be a boon to both consumers and retailers, but the former group can sometimes be left holding the bag. Misplaced or forgotten cards, expired cards, and dormancy fees can leave gift recipients unable to reclaim the full value of their cards (although government regulations enacted in recent years have attempted to address some of these issues).
Of course, it can also prove rather difficult for consumers to reclaim the value of gift cards and gift certificates issued by retailers who have since gone out of business, an issue addressed by the above-quoted warning urging readers to use as soon as possible gift cards issued by several chains identified as recently
having filed for bankruptcy (because such cards "will not be valid for much longer"). Although the warning isn't necessarily bad advice, the message also promotes some misconceptions.
First of all, a company's "filing for bankruptcy" doesn't always mean it is going out of business. Companies typically file for Chapter 11 bankruptcy protection in order to put forth reorganization plans that will allow them to keep their businesses alive while they pay their creditors over time. Companies who file for Chapter 11 may still go bankrupt anyway (Chapter 7), or their reorganization plans may not be approved by bankruptcy courts, or they may emerge from Chapter 11 protection too weak to remain viable for long, but none of those outcomes is inevitable — many businesses have thrived (or least regained a stable level of performance) after emerging from Chapter 11 protection.
Additionally, although federal law allows companies to stop honoring gift cards when they file for Chapter 11 bankruptcy protection, not all businesses do so. Some companies may continue to redeem store gift cards while they reorganize, while others may temporarily suspend redemption of gift cards for some period of time and resume it later. That any particular retail business has recently filed for Chapter 11 protection does not automatically mean that any gift cards or gift certificates it has previously issued will "not be valid for much longer."
Finally, not all the companies listed in the warning quoted above have filed for Chapter 11 protection yet (and may or may not eventually do so), as detailed below:
Hollywood Video: Movie Gallery Inc., the second largest video rental company in North America (after Blockbuster) filed for Chapter 11 protection in October 2007. A federal bankruptcy court approved the company's reorganization plan in April 2008, and Movie Gallery expects to emerge from bankruptcy protection early in the second quarter of 2008. However, the chain (which operates stores under both the Movie Gallery and Hollywood Video names) announced in September 2007 that it planned to close over 500 unprofitable stores, and in April 2008 Movie Gallery announced closure plans for 400 more of its outlets, so some customers may soon find themselves without any nearby Hollywood Video locations in their areas.
Levitz: The Levitz Furniture chain filed for Chapter 11 bankruptcy protection (for the third time in ten years) in November 2007 and shortly afterwards began the process of closing its stores and liquidating its remaining inventory. Customers still holding Levitz gift certificates may have little recourse beyond filing claims against the company in bankruptcy court.
Sharper Image: The Sharper Image chain of specialty retail stores filed for Chapter 11 bankruptcy protection in February 2008 and initially suspended redemption of Sharper Image gift cards and gift certificates. However, the company soon lifted the suspension, albeit with additional restrictions in place: Customers using those forms of payment must now make purchases worth at least double the value of their cards/certificates and must redeem them for their full value.
Linens 'n Things: In April 2008 news accounts began reporting that the Linens 'n Things chain of housewares and bedding stores was considering seeking Chapter 11 protection in the near future, but at the time the above-quoted message began circulating the company had so far delayed taking that step while it searched for a buyer. On 2 May 2008, however, the chain finally filed for bankruptcy protection after failing to find an alternate solution to its financial problems and announced plans to close 120 of its stores.
Some versions of this list include mention of Bed, Bath and Beyond (BBBY), a retail chain which is the main competitor of Linens 'n Things in the housewares and bedding business, but BBBY is not known to be in immediate financial distress or contemplating filing for Chapter 11 bankruptcy protection at this time. In fact, in April 2008 rumors were floating that BBBY was considering purchasing 40 CanadianLinens 'n Things stores which the latter company was seeking to sell off to raise cash and avoid bankruptcy.
Circuit City: The Blockbuster movie rental chain made headlines in April 2008 when it tendered an unsolicited $1.35 billion offer to buy the (money-losing) Circuit City chain of consumer electronics stores. Circuit City's largest shareholder (HBK Investments LP) has called upon the chain to put itself up for sale, but company officials have so far rebuffed the Blockbuster offer, saying they didn't believe the video rental giant could "consummate the proposed transaction in light of the difficult current financing environment." Although many business analysts may believe that the Circuit City chain is headed on a path towards closure or bankruptcy within the next few years, the company has so far not sought Chapter 11 bankruptcy protection.
Last updated: 2 May 2008
The URL for this page is http://www.snopes.com/politics/business/bankruptcies.asp
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