A little info about gift cards.

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Bankruptcies Have You Fearing Gift Card? Experts Weigh In
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By MICHAEL SASSO | The Tampa Tribune

Published: November 28, 2008

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TAMPA - By now millions of people have received one of those e-mails floating around warning about gift cards this holiday season.

To the frustration of retailers, the e-mails list retailers in bankruptcy – as well as several that aren't – and suggest extra caution about buying gift cards lest you show up at the store and discover it has closed or won't honor them.

In defensive mode, a few retailers scrambled to assure the public that the e-mails are hoaxes and that they will honor the cards.

What's a shopper to do?

Consumer advocates say you need to be aware of which retailers are in bankruptcy, although some bankrupt retailers are still honoring the cards. One advocacy group, the Consumer Federation of America, advises against buying gift cards at all.

Here are some gift card question answers from consumer advocates, retail and restaurant experts and bankruptcy lawyers:

Q. What happens to gift cards when a company files for bankruptcy?

A. In bankruptcy cases the holder of a gift card becomes an unsecured creditor, a person or business with a claim against the bankrupt company. So, with the approval of a bankruptcy judge, a retailer might – or might not – choose to honor gift cards when you take them to the store.

If the retailer won't accept them, you still have a right to get in line with the retailer's other creditors and seek a payout.

"But as a practical matter, most of us don't even have the wherewithal to know how to do that," said Jack Gillis, public affairs director for the Consumer Federation of America.

Q. Are bankrupt retailers accepting gift cards?

A. In many cases, retailers that are in Chapter 11 bankruptcy, in which the company tries to reorganize its finances and stay in business, are choosing to accept gift cards. Customers with gift cards from companies in Chapter 7 bankruptcy, which leads to liquidation, may be out of luck.

For example, Circuit City, which entered Chapter 11 in October, is accepting gift cards at its stores and on its Web site. The Tribune couldn't reach the Linens 'n Things chain, which is liquidating this week.

But a Linens 'n Things spokesman recently told the New York Times that the company would honor gift cards purchased before Oct. 17, the day its going-out-of-business sale began.

Q. Which retailers or restaurants have filed for bankruptcy?

A. Among retailers that have filed for bankruptcy are Circuit City, Linens 'n Things, Sharper Image, Steve & Barry's, Mervyns and Whitehall Jewelers. Restaurants that have filed for bankruptcy include the parent company of Bennigan's and Steak & Ale as well as Tampa-based Shells, both of which filed for Chapter 7, and Tampa-based Sam Seltzer's Steakhouse, which filed for Chapter 11.

Also, two large franchisees of the Waffle House chain, including a Brandon-based franchisee that operates 146 Waffle Houses, are in Chapter 11 bankruptcy.

Q. What about the store closures mentioned in those e-mails?

A. Even if a company hasn't filed for bankruptcy protection, it may be closing some if its stores, and that could make it harder for you to use gift cards.

For example, some chains are pulling out of some markets entirely or just leaving one store to cover an entire region. For example, S&K Menswear recently shut two stores, one each in Clearwater and St. Petersburg. To use an S&K card now, you must visit stores in Brandon and Ellenton.

Using gift cards still will be a problem next year because the nation is expected to see a wave of store closures and bankruptcies after what is expected to be a poor holiday shopping season.

An estimated 148,000 stores nationwide are expected to close by year's end, up from about 135,000 in 2007, according to the International Council of Shopping Centers. The council is projecting that an additional 73,000 stores will close in the first half of next year.

"It's inevitable that there are some national chain restaurant companies that will have to close," said Chris Muller, director of the Center for Multi-Unit Restaurant Management at the University of Central Florida. "There are some companies that are living on lines of credit."

Q. What advice do the experts have?

A. Gillis, the Consumer Federation official, suggests avoiding gift cards. Aside from the problem of potential bankruptcies, many cards lose value over time or have expiration dates.

If you feel you must buy a gift card, Gillis advises getting one tied to a credit card company, which may be used at multiple locations, rather than a single retailer.

Many malls also offer gift cards that may be redeemed at a number of stores. The Westfield mall chain recently signed a deal with American Express, so Westfield cards may now be used anywhere American Express is accepted -- even outside Westfield malls, said Dawn Richter, marketing director for Westfield Brandon.

Reporter Michael Sasso can be reached at (813) 259-7865 or msasso@tampatrib.com.