Did you know that when you buy a gift card, you’re essentially loaning money to a company? Chris H. forwarded a MSNBC story that describes how after bankruptcies, gift cards can be worthless:

The Sharper Image announced late last month that it was suspending the acceptance of gift cards, at least temporarily. It urged shoppers to check the company Web site later this month for an update. That is typical of businesses that reorganize under Chapter 11 bankruptcy, which treats gift cards as a loan to the company, not as cash.

If you own a gift card to a bankrupt company, you’re basically a tiny creditor. And if the company goes bankrupt, the bigger creditors get their money first. You’re last in line. The article notes that retail bankruptcies are expected to reach their highest levels this year since 1991. But it also notes that consumers shouldn’t just throw away their gift cards.

The Sharper Image, for example, is attempting to re-organize. If this move is successful, the business will continue and the company may honor existing gift cards. And don’t assume that just because a company closes its doors in your town that it’s out of business for good. If you have a gift cards for a place that’s moved out of your area, check to see if you can redeem them online.

[MSNBC: After bankruptcies, gift cards can be worthless]

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