Bankruptcy, is one of the risks of any gift card. Ultimately, business is about making a profit and there are times when a business model can't sustain itself. Typically, the business will borrow money in an effort to survive and make the business viable. However, sometimes a turnaround is not possible and the business may have no choice but to file for Chapter 7 Bankruptcy protection. In other words, to close the doors and go out of business for good.
Looking At The Numbers
A recent article by tampabay.com gives some insight into the numbers a bankruptcy judge might see in a bankruptcy case. Sam Seltzer's Steakhouses owed a total of $3.8 million and had just $53,000 in assets.
The $3.8 million in debt is broken into two parts:
1) Secured Debt - Simply put, secured debt is any debt which is associated with some tangible property. For example, a loan for kitchen equipment or a mortgage on a building. Sam Seltzer's had approximately $2 million in secured debt.
2) Unsecured Debt - On the other hand, unsecured debt is all other debt. For example, payments to employees, vendors and so forth. Gift cards also fall into the unsecured debt category. Sam Seltzer's Steakhouses had approximately 1.8 million in unsecured debt, of which $262,000 was owned by gift card holders.
Too Many Hands, Not Enough Money
With $53,000 in assets, Sam Seltzer's could not refund all the gift card holders even if they were first in the long line of people to be paid. Unfortunately for git card holders and according to the Bankruptcy Code, unsecured debt has a lower priority of payment than secured debt. Worse yet, repayment to gift card holders falls towards the bottom of the payment priority for unsecured debt.
Bottom line, when a company files for Chapter 7 bankruptcy, it simply doesn't have the money to meet it's financial obligations. What little money is left often goes to those with a higher payment priority as set by the Bankruptcy Code.
Chapter 13 Bankruptcy - Reorganization
It's important to note, there is another forms of bankruptcy protection, Chapter 13. If a business files for Chapter 13 bankruptcy protection, it intends to reorganize and will likely ask the Bankruptcy Court for the ability to continue accepting gift cards. Blockbuster Video and Claim Jumper are two recent examples of companies filing for Chapter 13 bankruptcy protection, but continuing to accept and sell gift cards. In other words, just because you hear a company has filed for bankruptcy, it don't mean your gift card instantly worthless. It's important to look into the matter and use that gift card ASAP.
ScripSmart Accounts Can Help
Remember, a ScripSmart Account can help you avoid being stuck with a worthless gift card. Just sign up for a free account and add your gift cards. If we catch wind of a company going under or even in financial trouble, we'll be sure to send you a note via email and hopefully you'll have one last opportunity to redeem that gift card!