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Thu., Jan. 1, 2009

The lackluster holiday season and deepening recession will take a toll on retailers around the country. Experts are predicting the worst rash of store closings in 35 years. That means consumers may be left with worthless gift cards, warranties and service contracts. Here are some questions and answers about rights consumers have if their retailer files for reorganization or goes out of business – and what they can do to protect themselves.

Q. Will my gift cards lose their value in a bankruptcy?

A. Legally, consumers who hold gift cards become unsecured creditors of the company. That means they are second to last in line to get their money back, just ahead of shareholders.

Practically, however, if the retailer stays in operation as it reorganizes, it can honor gift cards to keep customers happy as long as the company can afford it and gets court approval. But if the retailer goes out of business, it’s less likely consumers will be able to recoup all their money.

Be wary of hoarding gift cards. Use them right away. If you plan to buy gift cards, make sure the retailer isn’t in trouble.

Q. What happens if I put down a deposit for furniture and the retailer goes belly up before it’s delivered?

A. You could get your money back – up to $2,425. Legally speaking, you’re an unsecured creditor but you have a priority claim ahead of gift card holders in bankruptcy court. Q. What will happen to warranties and service contracts purchased at a retailer that files for bankruptcy protection?

A. Manufacturer warranties won’t be affected and extended warranties could still be serviced if they are backed by a third-party company. But extended warranties – as well as service contracts – backed by the retailer will be in jeopardy.

Q. I’ve got a balance on a credit card from a bankrupt store. Do I need to pay the bill?

A. If you received the goods and services you purchased, pay your bill. Moreover, many stores offer Visa or MasterCard cards, which are issued by banks. They will report you to credit agencies and hire bill collectors if you don’t pay up.

Associated Press


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