5 On Your Side

BBB offers help for shoppers when stores go bankrupt

Posted February 3, 2009 4:40 p.m. EST
Updated March 9, 2009 5:12 p.m. EDT

The going out of business sign has become a common sight.

Over the last few months. major retailers such as Friedman's Jewelers, Linens 'n Things and Circuit City have filed for bankruptcy protection.

Customers of those stores want to know what that means for them. Can you still redeem gift cards? Will warranties be honored? How about returns?

Beverly Baskin, CEO of the Better Business Bureau of Eastern North Carolina, answered some of consumers' most common questions.

Redeem gift cards immediately, she said.

"Don't put it in the drawer. ... Go ahead and use it because that's your best guarantee that it's going to be good," Baskin advised.

Once a business is bankrupt, redeeming them is iffy.

"If they're filing for Chapter 11 and they're really trying to reorganize their business, a lot of those companies may go ahead and honor the card," Baskin said, but that's not a legal requirement.

Once a store closes, gift cards are worthless. Holders are typically too far down the line of creditors to get anything back.

Extended warranties, if they are provided through a third party, are still valid even if the store closes.

Baskin also warns that liquidation sales are not the great deal that they seem to be.

"You have to pull out that little cynical cap and wear it for a few minutes when you're considering those deals," she cautioned.

Some retailers raise prices before they discount them. And final sales are just that. If a store goes out of business, you can't return something, even if it doesn't work.

Baskin said shoppers can protect themselves before even going to the store, however.

"You have to do a little bit of research and figure that the company's going to be around for a while," she said.

As recent months have shown, even companies with rock-solid reputations can suffer in an economic downturn.

"I don't think we've seen the end of that," Baskin said. "I'm not being pessimistic here. I'm being realistic."

When you choose to shop, you can protect yourself from faulty products by paying with a credit card. If the company goes out of business, you can dispute the charge with your credit card company and get it removed from your bill.

If you deal with a service provider, try to pay your deposit with credit as well. If the company goes out of business, you may be able to get the money back.