Sharper Image: Bankruptcy Renders Gift Cards Worthless

"Treats gifts cards as a loan not as cash..."

What happens to a gift card if the company goes out of business before one has a chance to redeem it?

The holders of Sharper Image Gift Cards found out when the company filed for bankruptcy last month.

"The Sharper Image announced late last month that it was suspending the acceptance of gift cards, at least temporarily. It urged shoppers to check the company Web site later this month for an update. That is typical of businesses that reorganize under Chapter 11 bankruptcy, which treats gift cards as a loan to the company, not as cash."

According to the Rocky Mountain News, retailers and gift card recipients are stuck in the no-man's land of bankruptcy laws and regulations.
Even if bankrupt retailers want to honor the gift cards, they may not be able to, according to Howard Kleinberg, director of the bankruptcy practice at Meyer, Suozzi, English & Klein.

Either they can't afford it or their creditors' committee or the bankruptcy court may not allow it. Gift cards amount to debt, and therefore holders are not necessarily going to get paid, Kleinberg said.

Buyers are unaware of what status they fall under when purchasing a card, that of "unsecured creditors" which means "secured creditors" get first pickings.

The International Council of Shopping Centers projects 2008 store closings could reach 5,770 stores, the largest number of closings since 2004.

Sharper Image plans to shutter 90 of its 184 stores while it "plans to conduct business as usual" while it formulates a reorganization plan.

In the interim its gift cards will remain worthless to those who currently hold them.

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Source - Rocky Mountain News

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