Consumers whose wallets are bulging with gift cards issued by now-bankrupt retailers should think about spending them now — since they may become worthless.
In fact, it’s the bankrupt retailers that may pocket the millions of dollars in unused prepaid gift cards.
“The time to act is usually fairly quickly,” said Clint Krislov of Krislov & Associates Ltd., a Chicago-based firm that has represented holders of gift cards in the bankruptcies of bookstore chain Borders and specialty retailer Sharper Image. “Some people instead let the gift cards sit in that back drawer somewhere and don’t do anything about it,” Krislov told The Wall Street Journal.
The list of retailers filing for bankruptcy continues to grow.
In a U.S. Bankruptcy Court filing reported by PYMNTS, JCPenney has identified the first round of 154 retail locations to be shuttered. A spokeswoman said it’s part of a plan to emerge from Chapter 11 bankruptcy and the COVID-19 recession.
Some retailers don’t plan to emerge from bankruptcy — Pier 1 Imports, Modell’s Sporting Goods and Art Van Furniture will permanently close their stores, according to the Journal report. The three retailers, court records said, had about $64 million in unspent gift cards when they filed for bankruptcy.
Other retail sector bankruptcies include Neiman Marcus Group, J.Crew Group and discount home-goods seller Tuesday Morning Corp.
As reported by PYMNTS, Neiman Marcus has received court permission to gain access to $675 million in debtor-in-possession financing from creditors, which allows the retailer to continue to operate and keep paying staff members. In addition, the court is allowing Neiman Marcus to maintain its return policies, honor credit cards and gift cards and keep customer loyalty programs
Experts say bankrupt retailers that are shutting down stores usually give gift-card owners about a month to use them. However, retailers may need to get court approval, as Neiman Marcus has, to continue accepting gift cards in bankruptcy.
As much as 4 percent of gift cards typically go unused every year in the U.S., according Mercator Advisory Group, research and advisory services firm. That’s about $2 billion to $4 billion.
“It could potentially be a windfall for the company that is in bankruptcy,” bankruptcy expert Chuck Tatelbaum, a lawyer at Fort Lauderdale-based law firm Tripp Scott, told the Journal.