BBB Advises Consumers on Steps to Take if a Retailer Goes Bankrupt

Nov. 25, 2008 - PRLog -- Media Contacts:
Cindy Stranad
919.232.5008
Cindy@articulon.com

Beverly Baskin
919.277.4202
bbaskin@raleigh.bbb.org

 
RALEIGH, N.C. (November 25, 2008) – Better Business Bureau (BBB) of Eastern North Carolina (www.bbb.org) is offering general advice to consumers on what to do if a retailer closes up shop without fulfilling its promises.

With the economy in a steady decline this year, the number of retailers closing their doors has increased substantially. Bankruptcy filings by U.S. businesses increased 41.6 percent in the first half of this year—67 percent in September alone—compared to 2007, according to data compiled by Automated Access to Court Electronic Records.

When a retailer files for bankruptcy, it will file for either Chapter 11, which means the company intends to reorganize and continue to do business, or Chapter 7, which means the company will close up for good and liquidate any assets in order to pay creditors. If a business intends to continue operations under Chapter 11, it will often till redeem gift cards, fulfill services and deliver on goods. However, some Chapter 11 bankruptcies quickly turn into Chapter 7 and then the chances for the consumer to receive any compensation are greatly diminished.

“The recent rise in bankruptcies has consumers confused,” says Beverly Baskin, president and CEO of the Better Business Bureau of Eastern North Carolina. “They’re left wondering if they’ll ever get the goods and services they paid for, if gift cards they are holding are worth anything and how retailer warranties will be honored.”

Following is advice from BBB on steps consumers can take if a retailer files for Chapter 7 bankruptcy:

Goods or Services Due
Bankruptcy law is specific regarding who will benefit first in the case of a retailer’s liquidation. Unfortunately, customers are at the back of the line. Typically, the money gained from the selling of the company’s assets goes to paying back secured creditors, as well as any employee wages, before whatever is left over is divvied among customers who didn’t receive the promised services or goods.

Customers who paid with credit cards, though, may be able to dispute the charge with the credit card company and get their money back—for this reason, among others, BBB highly recommends consumers pay with a credit card. For the rest who paid by debit card, check or cash, they will need to file a claim with the bankruptcy court administering the process—the deadline is typically 90 days after the filing date. More information on filing a claim, including downloadable forms, is available online at www.uscourts.gov.

Gift Cards
In cases of Chapter 11 bankruptcy, courts will decide if the business must honor gift cards or certificates. If the business has filed Chapter 7 bankruptcy, the holder must file a claim. In some cases, consumers might actually get at least part of the value of the card back. Some retailers have tried wooing new customers by accepting a bankrupt competitor’s gift card—but this is generally a rare circumstance. BBB advises that consumers redeem gift cards as soon as possible in order to avoid any headaches with bankruptcy files and court actions.

Warranties
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 any warranties provided by the retailer. Many extended warranties and service plans are provided and administered by third parties and are typically not affected by a retailer or manufacturer going bust.

For more trustworthy advice on gift cards, extended warranties and on how to become a savvier consumer, go to www.bbb.org.

About BBB of Eastern North Carolina:
The Better Business Bureau of Eastern North Carolina is a 501 (c)(6) not-for-profit corporation serving 33 counties in eastern North Carolina. The organization is funded primarily by BBB Accredited Business fees from more than 3,200 local business and professional firms. The BBB promotes integrity, consumer confidence and business ethics through business self-regulation in the local marketplace. Services provided by the BBB include, reports on companies and charitable organizations, general monitoring of advertising in the marketplace, dispute resolution services, and consumer/business education programs. All services are provided at no cost to the public, with the occasional exception of mediation and arbitration. Visit www.bbb.org.