Gift Cards: Fact vs. Fiction

Learn how to handle gift cards from stores that have gone out of business.

Nov. 25, 2008 — -- This year, consumers are expected to spend $25 billion on holiday gift cards. But what happens if you receive a gift card from a retailer that's going out of business or has filed for bankruptcy?

Currently, an e-mail is circulating the Web, warning consumers to use or lose their gift cards from closing stores.

"GMA" technology contributor Becky Worley separates fact from fiction and tells you how to ensure you get the most out of gift cards this season.

There is some truth to this e-mail. This year, some consumers have been left holding the bag (or in this case the card) with $100 million in unused gift cards that could not be redeemed when stores went belly up. And consumers have very little recourse to get their money back.

Here's a rundown of some of the larger retailers that are in bankruptcy or in trouble.

Breakdown of Stores

Sharper Image

Sharper Image is already out of business. It left a lot of people holding $20 million in unusable gift cards, but they haven't sold gift cards since before they declared bankruptcy in February. Don't buy their gift cards on eBay because they aren't worth anything.

Circuit City

Circuit City is in chapter 11 bankruptcy. They have closed some retail stores, but I spoke with their corporate headquarters and they say they are restructuring and plan to stay in business for the long run.

The chain is selling and accepting gift cards this season. My advice -- there are great deals on merchandise at Circuit City; buy electronics there and avoid gift cards.

Wilson's Leather

Wilson's Leather has closed all of its mall stores, but Wilson's Leather Outlets, airport stores and the company's Web site will all honor any Wilson's Leather retail gift cards.

Check Fees and Expiration Dates

Although they seem like the perfect gift, last year, more than $8 billion worth of gift cards went unused. People forget they have the gift cards or lose them. Make sure the cards come from a store where the gift's receiver already shops.

And don't forget to check fees and expiration dates. Also, you need to check before you buy a gift card that the metallic strip covering the pin number on the card has not been scratched off.

In stores that hang the gift cards out in public spaces, crooks will rub the metallic strip off, get the pin and then go online to redeem the value of the card.

Generic Bank Cards vs. Cash

Consumer Reports issued lot of information about these cards. They bear the logo of a major credit card, but they often have fees and expiration dates. Plus, they can lose value if you don't use them quickly.

The bottom line is: if you must give a gift card, make sure it's from a store where your recipient already shops, and that the store isn't in bankruptcy. And when in doubt, give cash.