If a retailer goes bankrupt, its gift cards and merchandise credits might be worth little or nothing. That could add up to a big hit; Sharper Image customers might lose some $40 million in gift cards and credits, according to court records.

In bankruptcy court, such unused funds are treated as debt. A retailer can ask the court for permission to continue to accept them. If the court says no, the cards are worth little more than the plastic they’re printed on. Consumers may be left with only one option: to file a claim as anunsecured creditor in the bankruptcy proceedings, a cumbersome process.

What You Can Do

• Consider giving cash; 2.7 percent of gift-card recipients hadn’t used all their cards, a 2007 CONSUMER REPORTS survey found.
• Be sure the gift-card recipient understands the fees and expiration date of any card you buy.
• Don’t view bank-issued gift cards as the answer, many are loaded with fees. And if the bank fails, the value of the cards might not be insured.

The Problem with Gift Cards is a post from: Austin Bankruptcy Lawyer