Traditional retailers with significant real estate holdings have been battered by the COVID-19 crisis and consumer shift to online spending. As a result, many retailers have sought refuge in the bankruptcy court.
Some retailers like JC Penney, J. Crew and Neiman Marcus are planning to remain in business while using the bankruptcy process to close a number of stores and restructure their balance sheet. Other retailers like Art Van Furniture, Modell’s Sporting Goods and Pier One Imports will use the bankruptcy process to liquidate and permanently close their stores.
The bankruptcy filings will likely have a significant impact on gift cards held by consumers. For bankruptcy purposes, a gift card is essentially a claim that a consumer has against a company. If a consumer holds a $25 gift card to Pier One Imports, that means Pier One owes the consumer $25, and the consumer is a creditor in the Pier One bankruptcy.
Retailers who plan to continue their operations generally seek court approval to continue to honor their gift cards after the bankruptcy proceeding concludes. However, if a retailer plans to liquidate and permanently close their stores, the gift cards will ultimately be worthless. Modell’s Sporting Goods has requested that the Bankruptcy Court establish a July 8 deadline to use gift cards. After July 8, if approved by the Court, the gift cards may not be used by consumers and will be worthless.
Nearly every traditional brick and mortal retailer is experiencing financial distress at some level. The wave of retail bankruptcies will continue. Accordingly, consumers should pull their gift cards that are collecting dust and use them as soon as possible.
For more support and information relating to COVID-19, please visit the Kerr Russell COVID-19 Resource Center. If you have questions relating to this article or other bankruptcy law matters, please contact a Kerr Russell attorney.
Jason W. Bank is the chair of the firm’s Bankruptcy and Restructuring department. He focuses his practice in the areas of commercial bankruptcy, out-of-court workouts, corporate restructuring and creditors’ rights. Jason has successfully guided numerous businesses through out-of-court restructurings and Chapter 11 reorganizations. He has negotiated resolutions of complex financial issues and debtor-creditor disputes and achieved consensual restructurings while avoiding bankruptcy or litigation.
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