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When a company announces that it is closing or it files for bankruptcy, customers with gift cards, certificates and prepaid services are often concerned about being left in the lurch. Some consumers may have paid money in advance for services from the business and are now unable to obtain those services.  Some may have purchased merchandise and not yet received it because the business ceased all operations, including the shipping process, when it filed for bankruptcy protection.  Still other consumers may want to return the merchandise they purchased and obtain a full refund. Or some simply have a gift card they wanted to use at the business.

Typically, under Massachusetts law, a gift certificate or a merchant credit slip (given for returned merchandise) is redeemable for a minimum of seven years from its date of issuance. The seller must clearly indicate the date of issuance and expiration date on either the face of the certificate, or, if it is an electronic card with a banked dollar value, on the sales receipt, or by means of an Internet site or a toll-free number. If the expiration date is not made available by these means, the gift certificate/card is to be redeemable in perpetuity.

Once a gift certificate has been redeemed for 90 percent of its value or more, the consumer may elect to receive the balance of the remaining value in cash. If your gift certificate can be reloaded and has less a remaining value of $5.00 or less, the consumer may receive the balance in cash, continue using it, or elect to reload funds to it.

But what happens with the company where you have a gift card to use goes out of business? A consumer’s options often depend on what is happening with the business. If a store switches ownership or is bought out by another business, it’s best to ask if the gift card or prepaid services will be honored. Many businesses will want to keep you as a customer and will honor gift cards or prepaid services for a set amount of time. If the business closes completely, it’s possible that a former competitor will honor the card in hopes you will return or provide the service at a discounted rate. It never hurts to ask.

If you paid for a gift card, service or item with a credit card, contact your credit card company. You may be able to convince them to reverse the charge.

When a company goes bankrupt and closes its doors, its assets are sold off and the profits are used to repay creditors. Bankruptcy is a federal legal process through which individuals or businesses who are in debt may seek to eliminate the debt, repay some or all of it, or liquidate their assets to obtain relief from their financial troubles and start over. Generally the most frequently filed bankruptcies are Chapter 7, 11 and 13 which refer to the Chapter of the Federal Bankruptcy Code under which the filing is brought by the debtor.

In this case, you may need to claim yourself as a creditor because the company owes you money or merchandise. Be aware of deadlines related to a Bankruptcy filing, especially with regard to filing a proof of claim. The United States Bankruptcy Court for the District of Massachusetts has information on its website for what steps to take. You can also call the Bankruptcy Court where the business filed to obtain more information and specifics about your claim as a consumer creditor. There are three offices of the United States Bankruptcy Court for the District of Massachusetts that are located in Boston, Worcester and Springfield.

In some cases, it’s worth holding onto the gift cards. Some companies emerge from bankruptcy and resume business. When this happens, they may accept old gift cards that were issued prior to the bankruptcy.

The Attorney General’s Office may also bring a legal action seeking recovery of the value of unredeemed gift certificates or gift cards in select instances where they receive a large number of complaints from consumers who allege unfair and deceptive acts or practices by the business. Contact the AGO’s Consumer Advocacy & Response Division (CARD) for assistance or to file a complaint.

If you have additional questions, contact the Office of Consumer Affairs and Business Regulation by calling our Consumer Hotline at (617) 973-8787, or toll-free in MA at (888) 283-3757, Monday through Friday, from 9 am-4:30 pm. Follow the Office on Facebook and Twitter, @Mass_Consumer. The Baker-Polito Administration’s Office of Consumer Affairs and Business Regulation along with its five agencies work together to achieve two goals: to protect and empower consumers through advocacy and education, and to ensure a fair playing field for Massachusetts businesses. The Office also oversees the state’s Lemon Laws and Arbitration Program, Data Breach reporting, Home Improvement Contractor Programs and the MA Do Not Call Registry.

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