What to do When Local Retailers File for Bankruptcy

April 04, 2010

As a result of the declining economy, the number of retailers closing their doors has increased substantially, leaving confused shoppers wondering what will happen to purchases they haven’t received, incomplete repairs, unused gift cards, and warranties.

“Sadly, thousands of businesses across the country go under each year,” said Nancy B. Cahalen, President of the Better Business Bureau of Central New England. “In the wake of so many closures and bankruptcies, customers have been and will most likely continue to be in the dark, wondering if they’ll ever get the goods they paid for or if the gift cards they are holding are worth anything.”

Following is advice from BBB on steps consumers can take if a retailer goes out of business:

What can I do if a retailer goes out of business but doesn’t officially file bankruptcy?

Send the company a letter because their mail may be forwarded. Physically go to their location to see if they left a message on the door for customers. Ask neighboring businesses if they have any information. Try to reach the owner. If you have merchandise in the store, contact the landlord to see if you can be given access to the company’s facility. As a last resort, contact law enforcement.


Once in a while, contacting a manufacturer results in you receiving partially or fully-paid-for items even when the retailer is no longer operating. The validity of any outstanding warranties varies for each bankruptcy. If a retailer goes out of business, the consumer may be able to rely on the manufacturer’s warranty. If a manufacturer goes out of business, the consumer may be able to rely on a retailer warranty. Many extended warranties and service plans are provided and administered by third parties and are typically not affected by a retailer or manufacturer closing its doors.

Bankruptcy: Chapter 11

Some companies file Chapter 11. This allows the company to continue operations while it reorganizes for future stability. If Chapter 11 is filed, the company will often still redeem gift cards, fulfill services and deliver on goods. Unfortunately, some Chapter 11 bankruptcies turn into Chapter 7, which provides for closure and complete liquidation. Then the chances for the consumer to receive any compensation are greatly diminished.

Bankruptcy: Chapter 7

Under Chapter 7, the money gained from selling the company’s assets goes to back taxes, secured creditors and employees. That usually depletes available assets. If any assets are left over, they are divided among unsecured creditors, including customers who didn’t receive services or goods already paid for.

Customers who paid with credit cards may be able to dispute the charge with their credit card company to get their money back. Others who paid by debit, check or cash, will need to file a claim with the bankruptcy court administering the process. The deadline is typically 90 days after the filing date. Visit www.uscourts.gov.

Gift Cards

With Chapter 11 bankruptcy, courts will decide if the business must honor gift cards. Under Chapter 7 bankruptcy, the holder must file a claim through the bankruptcy. To avoid problems, BBB advises that consumers redeem gift cards as soon as possible.

For more information visit www.bbb.org