Gift Cards, Deposits, and Warranties When a Store Goes Bankrupt

If a store you've done business with files for bankruptcy, your gift card, deposit, or warranty doesn't automatically become worthless — but it isn't automatically safe either. What happens depends on which chapter the company files (reorganizing under Chapter 11 versus liquidating under Chapter 7), what the bankruptcy court approves early in the case, and whether the business is sold. Often, the fastest and most reliable way to get your money back isn't through the bankruptcy case at all — it's a credit-card dispute filed with your card issuer.

None of this is your fault. You're an unsecured creditor of a company that ran out of money, alongside thousands of other customers and vendors. Here's how each piece works, and what actually moves the needle.

Gift cards: "still works at checkout" isn't guaranteed

When a retailer files Chapter 11 to reorganize, it's common for the company to ask the bankruptcy judge, on the very first day of the case, for permission to keep honoring gift cards and store credit. Courts often approve these "first-day orders" because keeping customers loyal helps the business survive — but it's a request the judge can grant, limit, or deny, not an automatic right.

If the case converts to a Chapter 7 liquidation, or the company simply closes, gift cards typically stop being honored. The balance becomes a general unsecured claim — the same low-priority category as most of the company's other debts (see what gets paid first in bankruptcy). Unsecured creditors are paid last and, in most retail bankruptcies, recover only a small fraction of what they're owed — sometimes nothing.

If the brand is sold to a new owner instead of shutting down, whether the buyer honors existing gift cards is a term the buyer negotiates as part of the purchase, not something required by law. Some buyers honor cards for a while as goodwill; others don't.

Practical move: if you're holding a card for a retailer that's struggling or has filed, use it as soon as reasonably possible rather than waiting. Federal law keeps most gift cards from expiring for at least five years, but that only protects the card from expiring on its own terms — it does nothing if the company runs out of money to redeem it.

Deposits for goods or services you never received

If you paid a deposit — for furniture on order, a custom item, a prepaid service, or layaway — and the company filed before delivering, the Bankruptcy Code gives you something gift-card holders don't automatically get: a modest priority claim. Under 11 U.S.C. § 507(a)(7), deposits individuals paid for personal, family, or household goods or services never delivered are placed ahead of ordinary unsecured debt — up to a dollar cap that Congress adjusts for inflation every few years. Because that cap changes, don't rely on any figure you see quoted online; check the current amount at uscourts.gov or the Bankruptcy Code text at govinfo.gov.

Two limits worth knowing: priority isn't automatic payment — it only matters if there's money in the case to distribute, and many retail bankruptcies leave little or nothing after secured lenders and case costs are paid. And priority isn't automatically applied — you generally need to file a proof of claim (more below) and flag the priority category yourself.

Warranties: assumed, rejected, or someone else's promise entirely

A warranty is a contract, and contracts a bankrupt company hasn't finished performing are "executory contracts" under 11 U.S.C. § 365. The debtor (or a buyer of the business) can assume that contract — it keeps running as promised — or reject it, turning whatever it was worth into just another unsecured claim.

What matters most is who actually backs the promise. Extended warranties and service contracts are often underwritten by a separate insurance company, not the retailer, so the retailer's bankruptcy may not touch them. Manufacturer warranties on a car, appliance, or electronics likewise come from the manufacturer, not the store. It's a store's own repair/return promise or private-label warranty that's most at risk — if the company making that promise is liquidating, the promise can simply end. If the business is sold, the buyer may assume certain warranty obligations as part of the deal or may refuse to; it's negotiated case by case, with no rule that a buyer must honor old warranties.

The fastest real remedy: a credit-card chargeback

If you paid with a credit card for something you never received — a gift card that stopped working, a deposit for goods never delivered, a service contract that ended — your strongest and fastest tool often isn't the bankruptcy case at all. It's your right under the federal Fair Credit Billing Act to dispute the charge with your card issuer as a billing error for goods or services "not delivered as agreed," without needing to resolve it with the merchant first.

The hard deadline to flag: you generally must send your dispute in writing within 60 days of the date the first billing statement showing the charge was sent to you. Miss that window and the issuer isn't legally required to investigate. Don't wait to see how the bankruptcy case plays out — that can take months or years, and the FCBA clock doesn't pause for it. Debit cards are covered by a different, weaker law (the Electronic Fund Transfer Act / Regulation E) with tighter timelines, so report a problem to your bank the moment you notice it; third-party payment apps and buy-now-pay-later plans have their own dispute rules, which vary by provider.

See the FTC guidance on disputing undelivered-goods charges and the CFPB's guide to credit-card refund disputes.

Filing a proof of claim in the bankruptcy case

If a chargeback isn't available — you paid by cash, check, or debit card past the dispute window, or the amount exceeds what a chargeback can recover — your remedy runs through the case itself, using a proof of claim.

1. Watch for a notice from the court or a claims agent listing the claims filing deadline (the "bar date"). Don't assume you'll be notified automatically; if you know the company filed but got nothing, check the case docket (large cases often use a claims-agent website named in coverage of the filing; smaller ones can be checked on the court's PACER system).
2. Gather documentation — receipts, the gift card number, order confirmations, deposit receipts, warranty paperwork.
3. Complete and file Official Form 410 by the bar date; filing late can mean your claim isn't counted. If it's for an undelivered deposit, note that so it's considered for the § 507(a)(7) priority category rather than as an ordinary unsecured claim.
4. Monitor the case for a bar-date change, a sale of the business, or a claims-objection notice.

Filing a claim doesn't guarantee payment — it only preserves your place in line. General unsecured creditors (where an unhonored gift card lands) often recover little or nothing; priority claims like deposits have better odds but are still capped and still depend on funds being available.

What to do right now

1. Spend or use an unused gift card or store credit as soon as reasonably possible while the company is still operating.
2. If you paid a deposit and never got what you paid for, check whether you paid by credit card. If the 60-day dispute window hasn't closed, a chargeback is usually faster and more reliable than the bankruptcy case.
3. Pull your warranty paperwork to identify who actually backs it — retailer, manufacturer, or a separate insurer.
4. Watch your mail and email for a bankruptcy notice, and note the claims bar date the moment you see it.
5. Check uscourts.gov for the current proof-of-claim form, and your state attorney general's consumer protection office if the company also appears to violate state consumer laws.

A note on scams

High-profile retail bankruptcies attract scammers. Be wary of anyone contacting you out of the blue offering to "recover" your gift card balance or deposit for an upfront fee, or emails claiming to be from the trustee asking you to "verify" your bank account to process a refund — legitimate courts and claims agents don't ask for that. If your own finances are strained by a store's collapse, be equally cautious of for-profit debt-settlement companies and non-attorney "petition preparers." A qualified bankruptcy attorney, your state attorney general's office, or a U.S. Trustee–approved credit counseling agency are more reliable places to start. This is also worth reading alongside what happens when your employer goes bankrupt, since wages, benefits, and consumer claims are handled under related but distinct rules.

Takeaways

• Gift cards may keep working during a Chapter 11 case only if the court approves it — in a liquidation, or without approval, the balance becomes a low-priority unsecured claim that may pay little or nothing.
• Consumer deposits for undelivered goods or services get a modest, capped priority under 11 U.S.C. § 507(a)(7), but only if you file a claim — and only if the case has funds to distribute.
• Warranties may be assumed by a buyer of the business, rejected and turned into a claim, or unaffected entirely if a separate manufacturer or insurer actually backs them — check who's really on the hook.
• If you paid by credit card, the Fair Credit Billing Act gives you a real dispute right for undelivered goods — but you generally must act within 60 days of the statement, so don't wait on the bankruptcy case.
• Filing a proof of claim preserves your place in line but doesn't guarantee payment; watch for the claims bar date and be alert to recovery scams that pop up around high-profile bankruptcies.

This article is general legal information, not legal advice, and does not create an attorney-client relationship. For a significant loss, consult a qualified bankruptcy attorney or your state attorney general's consumer protection office — and be cautious of for-profit debt-settlement companies and non-attorney petition preparers.