A wave of well-known retailers has filed for bankruptcy protection this year, and in nearly every case, the same quiet casualty shows up somewhere in the court filings: gift cards. Saks Global, which owns Saks Fifth Avenue, Neiman Marcus, and Bergdorf Goodman, filed for Chapter 11 in January. A gift and loyalty card processor used by Costco and other retailers collapsed the same month, leaving thousands of cards suddenly worth nothing. Eddie Bauer gave its customers barely a month's notice before both gift cards and loyalty points on the company's rewards program were set to expire entirely. In each case, the underlying lesson is the same, and it has nothing to do with any single company's mismanagement.
A gift card feels like a small, stored amount of cash sitting in a drawer, waiting to be used whenever it's convenient. Legally, it isn't that at all. A gift card is simply an unsecured promise from the retailer to provide goods or services later, and bankruptcy law treats that promise exactly the way it treats any other unsecured debt the company owes: it goes into a long line of claims competing for whatever assets are left, with no special protection and no guarantee of being honored in full, or at all.
What Actually Happens Once the Filing Hits
When a retailer files for Chapter 11, a bankruptcy court typically has to specifically authorize the company to keep honoring gift cards at all, since technically the company could simply stop. Courts often do grant that authorization, at least temporarily, which is why shoppers frequently hear that their gift cards "still work" even after a bankruptcy filing makes headlines. But that authorization tends to come with real limits attached. In the Saks case, the court required stores that are actually closing to accept gift cards only for the first fifteen days after store-closing sales begin, after which closing locations are no longer obligated to take them at all. And the authorization itself can be modified or withdrawn with as little as two weeks' notice, meaning a gift card that works today has no guaranteed status even a month from now.
The Mechanics of a Debt With No Line to Stand In
Here's the structural reason gift cards fare so poorly in these situations compared to, say, a bank deposit. Money in a bank account is protected by federal deposit insurance up to a set limit, specifically because regulators decided ordinary consumers shouldn't bear the risk of a bank's financial collapse. A gift card has no equivalent protection built into the system anywhere. It's simply a line item on the retailer's own balance sheet representing money the company already collected and spent, owed back in the form of future merchandise rather than cash. When that company runs out of money, gift card holders are unsecured creditors standing behind secured lenders, landlords, and other higher-priority claims, which in a full liquidation frequently means gift card balances get paid back at pennies on the dollar, if anything.
Why This Lands Differently Depending on How the Card Got to You
A gift card someone buys and uses within days carries almost no risk of ever encountering this problem. The risk concentrates specifically in cards that sit unused for months or years, which describes a meaningful share of gift cards received from family members as holiday or birthday presents rather than bought for immediate personal use. A card tucked into a drawer with the intention of using it "next time I'm at the mall" carries real exposure to a retailer's financial health changing in the meantime, exposure the recipient usually has no way of monitoring and no reason to think about until a news headline about a bankruptcy filing arrives, often after the window to act has already closed.
What Actually Protects the Value on a Card
None of this means every gift card is at risk, and most retailers that accept gift cards remain financially stable for the life of the card. But a gift card's value is only as real as the issuing company's solvency on the day someone tries to redeem it, and unlike money in a bank, nothing in the financial system exists to make a gift card holder whole if that solvency disappears first. The practical habit worth building, for anyone who receives gift cards regularly or gives them to family, is treating them like a coupon with a real, if invisible, expiration risk: use them reasonably soon after receiving them, rather than saving them indefinitely for a future trip that may arrive after the retailer's own financial story has already changed.
— John Stone