Will Circuit City gift cards fulfill wishes?
Gift cards from various retailers on display at a Chevron convenience store.
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Circuit City filed for bankruptcy today.
We should have seen it coming after the company shut down more than 150 stores last week. It's entirely possible that Chapter 11 could help them make it through the holiday season.
If it doesn't, we'll all have one fewer place to shop for laptops and flat screen TVs.
And those Circuit City gift cards, what about them? Marketplace's Renita Jablonski has more on what happens to presents of the plastic variety when companies go under.
When a company like Circuit City files for bankruptcy, everyone the company owes money to lines up to get paid -- that includes gift card holders. Then a court decides who moves to the front of the line.
Brian Riley: Which has more of a right? Is it a creditor that's done long-time financing with the company and that's floor-planned the store? Or is it the consumer that's got a $20 or $50 interest in the debt?
That's Brian Riley, research director with Tower Group. He says, with that gift card you are an unsecured creditor. Meaning the gift card may not be worth the plastic it's printed on.
Riley says thousands of people learned that lesson the hard way when another big retailer filed for Chapter 11 earlier this year.
Riley: That was seen very significantly with Sharper Image where there were $62 million worth of unused gift cards that went into the bankruptcy.
The Tower Group estimates gift-card holders could lose more than $75 million this year with store and restaurant closings. Michelle Jun is an attorney with Consumers Union, which publishes Consumers Reports.
Michelle Jun: The best way to avoid losing your value on a gift card is not to purchase a gift card or request any gift cards during the holiday season from your loved ones.
Circuit City wouldn't go on tape for this story but sent an e-mail saying it's asking the court for approval to honor gift cards. But, Jun says, even if the court gives a thumbs up, it's no guarantee.
Jun: It still doesn't stop the retailer from then liquidating and shutting their doors.
All of this may have shoppers shouting a four-letter word this holiday season -- Cash.
In Los Angeles, I'm Renita Jablonski for Marketplace.