Better Business Bureau Tip: Gift Cards and Bankruptcy

When companies go out of business...
With the Toys R Us bankruptcy in the news, the Better Business Bureau explains gift cards and bankrupt businesses

Editor's Note:  With Toys R Us in bankruptcy and likely winding down operations, the Better Business Bureau published these tips about gift cards from bankrupt retailers.

Gift cards might seem like the perfect present for a hard-to-shop-for friend or family member, but they are not without drawbacks. When a store goes out of business, gift cards do, too. That’s unfortunately what many Toys R Us customers just found out. The chain is closing its stores, and gift card holders have 30 days to use their cards.

When Companies Go Out of Business

Under normal circumstances, gift cards are valid for years – or indefinitely. Federal Trade Commission regulations from 2010 declared that money on a gift card can’t expire for at least five years. In Canada, regulations differ by province, but many banned expiration dates on cash gift cards. However, the situation changes when a business declares bankruptcy.

When you buy a gift card, you are essentially giving the company a loan until you redeem the value. When a store files for bankruptcy, payments are frozen and creditors must file claims in order to get paid. Gift card holders will unfortunately find themselves out of luck or with limited options. This isn’t even up to the business. The court decides whether – and for how long – to accept gift cards.

If you miss the deadline to redeem a gift card, you are able to file a claim for the value of the card. However, these claims are processed behind the company’s major creditors. So if you see news about a company preparing to file for bankruptcy, use your gift cards immediately.

BBB Tips: Gift Cards and Bankruptcy

Avoid issues with your gift cards by following these tips:

  • Before buying a gift card, look into the retailer’s financial condition: If news articles report that a company is on shaky ground, it might be best to purchase a gift card from another retailer.
  • Check the terms and conditions. A gift card’s terms may allow the card to be used at another business location.
  • Purchase gift cards with a credit card, if possible: Your credit card company may be able to help recover money lost if a business goes under. Some retailers, however, require gift cards to be purchased with cash.
  • Use gift cards as quickly as possible: While you may have years – or forever – to use the gift card, that doesn’t mean you should wait that long to spend it.

Click here for BBB tips on avoiding gift card scams.


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