Should Gift Cards Be Honored When a Company Goes Bankrupt? One U.S. Senator Thinks So

Washington, D.C. - Gift cards are popular gifts, especially during the holiday season. Under current laws, companies that go bankrupt are not required to honor the cards, but Senator Richard Blumenthal (D.Conn.) wants that to change.

According to the Wall Street Journal, Senator Blumenthal has introduced the Gift Card protection Act which will protect consumers if the issuer enters Chapter 11 bankruptcy.

Currently companies can chose not to honor gift cards, but they are also allowed to sell them even if they have entered bankruptcy. There are also caps on claims for unredeemed cards.

Blumenthal’s proposal would block a company from issuing gift cards while in reorganization and would require them to honor the cards.

In addition to giving added card protection in bankruptcy, The Gift Card Protection Act would forbid expiration dates and extraneous fees imposed on the unused balance of gift cards.

This has long been an issue with Blumenthal who as Connecticut’s Attorney General ordered a local store, Ski Market, to honor close to $200,000 in gift cards after entering bankruptcy protection, the Wall Street Journal reported. Ski Market initially told consumers that bankruptcy did not permit them to honor the card, but eventually relented and honored only 50 percent of the value of such cards.

Entering bankruptcy is not an easy decision for a troubled individual or business to make. These financially troubled parties need to get the sound advice of a bankruptcy attorney to determine which structure will best suit their needs, whether it is Chapter 11, Chapter 13, or Chapter 7. With the right structure and a well-conceived plan the indebted party will return to solvency in a timely fashion.