How going out of business might affect gift cards

On Behalf of | Feb 5, 2016 | Contract Disputes

For every New York City business that has been a neighborhood favorite for decades, there are more that go under. When a company goes bankrupt or closes its doors, the repercussions involve more than its owners and employees. Customers are also affected, whether they were waiting for a service to be performed, a shipment of a product they ordered or had a gift card they did not yet redeem.

This problem may be more common than people would think. According to Forbes, most businesses fail within the first year and a half. Many companies these days offer gift cards to their customers. When a company goes out of business, there is not always a guarantee the card will be honored.

What can happen if a company does not honor a gift card, especially knowing that the funds for the card have already been paid to the company? The Better Business Bureau states that the fate of a customer’s gift card is largely reliant on the reason a company is closing. If the business owners are retiring or closing due to competition, it is up to them whether they will accept a gift card, either for the full or a partial amount. On the other hand, business bankruptcy can have a legal effect on outstanding gift cards. The company would need permission from the bankruptcy court before accepting customers’ gift cards.

Customers who have outstanding gift cards may decide to take legal action to have them redeemed, including claiming themselves as a creditor in a Chapter 7 or Chapter 11 business bankruptcy case. This tactic is not always effective, but may add to the complications in bankruptcy court and necessitate the assistance of a business law attorney.

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