What Happens to Gift Cards When a Business Goes Bankrupt?

Gift cards are one of the most requested and most gifted items in the United States. Their convenience makes them easy for purchasers. Their versatility means recipients will be happy. And they provide an important funding stream for many businesses. 

Gift cards function as unsecured loans that benefit the businesses that sell them. Under normal circumstances, each of those mini loans may stay on the books for years. In 2010, the Federal Trade Commission promulgated new rules for retail gift cards that restrict service fees and extend expiration dates.

How the COVID-19 Has Impacted Businesses

The COVID-19 pandemic has sped the collapse of many businesses that were teetering on the edge of insolvency. Retailers, restaurateurs, and mom and pop shops are all hurting. As more businesses declare bankruptcy, many consumers and business owners are wondering what will happen to the millions of dollars in outstanding gift cards that have yet to be cashed in. 

Because gift cards are considered unsecured debt, untethered to any sort of collateral, gift card holders are offered no special protections by the bankruptcy courts. In fact, businesses that file for bankruptcy must ask the court for permission to keep accepting gift cards while they wind down operations, or attempt to restructure. 

Courts will generally sign off on a request to allow customers to continue to redeem gift cards, but they do not have to. The court may also set a time limit after which gift cards will no longer be honored. The court does this in order to protect higher priority creditors. 

Consumers who miss the cut off deadline for using a gift card after a business has filed for bankruptcy can file a claim against the company for the value of the card. But it is unlikely this claim will be honored since higher priority creditors will be paid first. 

It is also important to note that if a company files under Chapter 11 and completely restructures, or is bought out of bankruptcy by new owners, outstanding gift cards may not be honored going forward. Although a business’s name may remain the same, it is essentially a new company that emerges from bankruptcy. Saddling it with old obligations from unsecured creditors when higher priority creditors did not get fully paid back is unfair, even if gift card holders disagree.  

Businesses that sell gift cards or gift certificates should clearly communicate to their customers what their gift card policy is if they file for bankruptcy. Being transparent about what is going on, and emphasizing the deadline for using outstanding gift cards can go a long way toward easing hard feelings. This is especially important if the business intends to restructure or sell its branding to a new owner. 

If you are considering filing for bankruptcy, and you have concerns about how to handle your outstanding gift cards, let’s talk. Hanson & Payne is a business-minded firm that business owners and commercial lenders in Milwaukee and across the state rely on to counsel them and guide them through the bankruptcy process. We would be honored to assist you during your time of need. 

Brewer Fans Have Bankruptcy To Thank For 50 Years Of Baseball

Most Julys, we are watching the All-Star Game, and starting to pay a little bit closer attention to the Central Division Standings. This year, we are teetering on the brink of a baseball season, with no promise that anyone, let alone the Brew Crew, will make it through the postseason before the pandemic shuts things down again. This could very well be the first year since the 1960s that there is no baseball in Milwaukee. 

It’s a little bit ironic because this was supposed to be a big year for the Brewers. 2020 is the team’s 50th anniversary, and the guys looked pretty good in the handful of spring training games that actually got played. 

One of the things we were looking forward to this year were those long, slow, middle innings when Bob Uecker brings a guest into the broadcast booth for a chat. The story of how the Brewers came to Milwaukee is a fascinating one, and we had hoped to hear some inside accounts of how it happened. 

Inside Pitch: Insiders Reveal How the Ill-Fated Seattle Pilots Got Played Into Bankruptcy in One Year

Earlier this year, a new book came out that tells part of the story. Inside Pitch: Insiders Reveal How the Ill-Fated Seattle Pilots Got Played Into Bankruptcy in One Year, from author Rick Allen tells the story of the work done by Bob Schoenbachler, the then 23-year-old CFO of the Seattle Pilots turned Brewers, and Jim Kittilsby, who also served in the team’s front office. As you may have deduced from the book’s title, bankruptcy played a major role in helping Milwaukee secure its Major League team. 

When the Braves left Milwaukee after the 1965 season, baseball lovers were devastated. The state even filed a criminal complaint against the MLB to try and keep the team here. The case went all the way up to the United States Supreme Court, but the Braves still went to Atlanta. 

Then, in 1967, Major League Baseball (MLB) announced that it was adding four expansion teams. Kansas City, Montreal, San Diego, and Seattle were all given leave to start teams, but Milwaukee was snubbed (perhaps as a punishment). Lucky for us, the Seattle Pilots had a horrible first year. So many things went wrong the team became the first and only professional sports team to ever declare bankruptcy

As we often remind our clients, filing for bankruptcy is often a way to find a path forward, not the end of the road. The Pilots’ path forward meant moving to Milwaukee and changing their name to the Brewers. Although Seattle fans were upset (the state of Washington filed its own lawsuit against the MLB), they were soon mollified by the creation of the Mariners. Both teams have had great success despite their market size thanks to the strong support of their fan base. 

If your business is in a slump, bankruptcy should always be on the table. At Hanson & Payne, we regularly assist Milwaukee area business owners and lenders who are looking for help finding a path forward. We would be honored to assist you during your time of need.

Don’t Be Too Optimistic About The Future When You File For Bankruptcy

At the end of Back to the Future, when Doc is convincing Marty and his girlfriend to accompany him to the year 2015, he utters the famous phrase, “Roads? Where we’re going, we don’t need roads.” It gets you excited for the sequel, which does in fact feature flying cars. Yet, here we are living in 2020, and there’s not a flying car, hoverboard, or self-tying shoe to be found. For some reason, the future we imagined has yet to arrive. 

At Hanson & Payne, we deal with this same disconnect between what is portrayed in movies or imagined and our current reality on a daily basis. There are many, many misconceptions about how bankruptcy works thanks to the way it is treated in popular culture. And filers often expect that the future will be much rosier than is likely. 

Busting Bankruptcy Myths

Our firm works with individuals and families interested in declaring bankruptcy as well as Milwaukee area businesses that wish to do so. Both types of clients often assume that all the debts they have will be forgiven and that all the assets they have will need to be sacrificed in order to achieve that result. Both of these assumptions are wrong. 

Not all debts are forgiven when a filer declares bankruptcy. Some common forms of nondischargeable debt are:

  • Tax debts
  • Child support, alimony, or other family support obligations
  • Debts that are tied to a legal judgment like a personal injury lawsuit
  • Student Loan debts, except in cases of undue hardship
  • Fines for violating laws
  • Debts that you forget to include in your bankruptcy application

Our firm works with filers to help them figure out what debts they will still owe if they file for bankruptcy. We also work with our clients to try and negotiate lower payments or some debt forgiveness from their remaining creditors. 

The other bankruptcy myth that we are frequently asked to bust concerns a debtor’s assets. Many filers assume that they will have to give up or sell off all of their assets in order to pay off their creditors. While this is true in some cases, there are chapters of the bankruptcy code that allow debtors to go on a repayment plan and/or restructure their debts so they can retain possession of important assets. Our firm helps our clients figure out which chapter of the bankruptcy code will be most beneficial to file under considering their long-term goals. Just like a time-traveler, we work to ensure that the current you is not going to mess things up for future you. 

Being Realistic About The Future 

We are not optimistic that flying cars will be available any time soon, but that does not mean that radical changes to the vehicles we know and love are not coming our way. Cars today are safer and more fuel-efficient than ever before, and self-driving vehicles will probably be here before we know it. Being realistic about what the future holds keeps us from being too disappointed that Back to the Future Part II didn’t get everything right. It’s also an important lesson in the bankruptcy world. 

It’s tempting to file for bankruptcy in hopes that doing so will help you get your life or your business back on track. However, it is important to remember that filing for bankruptcy is not the equivalent of waving a magic wand. If it is likely that things will get worse for you financially over the coming months, it may be better to wait to file until you have really hit rock bottom. 

Declaring bankruptcy can only help you manage the debts you already have. It can’t prevent you from accumulating more debt, and it can’t help you with debts you rack up post-filing. Being realistic about what the future holds for your family or your business is therefore critical. 

At Hanson & Payne we do more than help our clients fill out paperwork and navigate the bankruptcy courts. We provide advice and counsel that allows our clients to make good choices and chart a path forward. We look at debts of the past, our clients’ current situation, and even do our best to predict the future. We aren’t time travelers, but we are committed to helping Milwaukee area families and businesses survive and thrive during difficult times