Quickly use gift cards to stores in financial trouble. If store goes into bankruptcy, courts will decide if (and for how long) gift cards will be honored. Check out these examples.

Remember Radio Shack? When RadioShack filed for bankruptcy, the company originally said the store would only honor gift cards through March 6, 2015. However, according to the company’s website, RadioShack gift cards extended acceptance of the cards for a few weeks (March 31, 2015), pending court approval. The Wall Street Journal reported approximately $44 Million worth of RadioShack gift cards were outstanding at the time. Radio Shack stopped accepting the cards, but then lawmakers got involved and for a year, consumers had the option to file a claim until eventually the cards were fully defunct.

That was a couple of years ago now. Since then, a barrage of stores have also filed for Chapter 11 and the trend does not appear to be stopping as online shopping continues to dwarf in-store sales. So if you have a gift card in your wallet that is on my Chapter 11 Gift Card Watchlist, please read these tips on what to do with a gift card to a store in bankruptcy.

Sometimes people hold onto gift cards longer than they should because there’s no immediate need for the merchandise available, using the card is inconvenient, or they simply forget. When a store is rumored to be in financial trouble or it officially goes into bankruptcy, however, consumers need to act quickly before the value of their gift cards short out. Below are eight ways to use a gift card today:

While using the gift card to buy something you need might seem like obvious advice, it is the best way to use the gift card to its fullest value. If you previously didn’t think you needed anything from the store, think again. Are there some supplies you might need in the future or some basics you can buy? For example, with a Radio Shack gift card, you could have stocked up on batteries. With a the now defunct Sports Authority gift card, you could have bought socks, a first aid kit, tennis balls or other consumables that often need to be replaced. With Gymboree, an opportunity to stock up on baby onesies in a range of sizes. Whatever you decide, make a trip to the store quickly and use the gift card immediately.

When a store’s balance sheet is making headlines, use your gift card to start your Christmas shopping early or pre-buy gifts for graduation, weddings, birthdays and other gift-giving occasions on the horizon. Going back to RadioShack, for example, you could have purchased remote control cars, gaming accessories, wireless speakers, fitness trackers and a bunch of other items on wish lists. During pre-liquidation sales at Sears, you could have purchased a number of wonderful gifts for the upcoming wedding season (e.g. housewarming gifts, barbecue tools, cooking utensils, patio furniture) or graduations (towels, small appliances, air mattresses and more). Since the recipient won’t be able to return the gift if you buy it from a store that subsequently folds, I suggest sticking to items that are truly one-size-fits-all (beach towels) or always in demand (AAA batteries).

Use a soon-to-be extinct gift card to buy necessities for your office, church or school. Every organization needs hand sanitizer, cleaning supplies, serving accessories and more. With a Bed Bath & Beyond gift card, for example, you could buy bedding, mops, towels, or blankets and donate them to a shelter. This store also sells small appliances like air fryers, coffee makers and portable fans. Think about products the organizations you run (or support) could use and buy products they will appreciate receiving. (Don’t forget. You’ll also get a tax write-off.)

Time is ticking. If the courts don’t approve a store’s petition to continue accepting gift cards, liquidation sales will begin. During liquidation, gift cards are often unusable sooner than expected. Rather than buy something for yourself, look for items you can sell online or at a garage sale. Electronics such as gaming systems (new in box) should fetch a decent payout as will brand new (never worn) sneakers or appliances.

Probably the least satisfying way to use a gift card for a store that is going out of business is to simply file a claim. While processing could take months, there’s no guarantee you’ll get paid and your claim won’t get paid until the company’s other creditors are satisfied, there is a chance you could get the load value of your gift card back. You’ll need to provide proof that you have a gift card and you should hold onto the gift card until the case has been fully settled. On my Chapter 11 Watchlist you’ll find claim instructions for many of the stores and restaurants currently in bankruptcy.

When Sharper Image filed for bankruptcy and stopped accepting gift cards, Brookstone, one of their competitors, offered consumers 25% off any purchase if they surrendered a Sharper Image gift card in the process. Since Brookstone had no way of confirming the balance of the Sharper Image card, the dollar value didn’t matter. When Toys R Us went out of business, Bed Bath & Beyond made a similar offer for a limited period of time. Though this isn’t my first choice for how to use a gift card when a store is in financial trouble, it may be the only option left if you wait too long.

The best thing to do is use the gift card yourself as quickly as possible.

Do NOT wait!

When a store goes into liquidation, often times the merchant no longer owns the inventory. Instead a liquidator comes in to run the sale. When that happens, gift cards are generally no longer redeemable. Holding out for deeper discounts through liquidation could cost you the use of your gift card entirely. (Also, merchandise gets picked over quickly. So use it early.)

Secondly, if you legitimately miss the opportunity to use your gift card, hold onto it anyway. Sometimes courts, businesses and lawmakers battle back and forth for a little bit to decide if gift cards should be redeemable. More than once I’ve seen a deadline get extended and I’ve even seen customers get compensated more than a year later as long as they could prove they had a gift card.

When you buy a gift card, you are giving the merchant an unsecured loan until the full value of the gift card is redeemed. When a store files for bankruptcy, payments are frozen and creditors must file claims in order to get paid. Since gift card holders are a unique set of creditors, the company must ask the courts for permission to redeem gift cards through a certain date. The situation can be confusing for consumers because stores in bankruptcy protection are often open well beyond the gift card acceptance period. It’s just that somebody else owns the merchandise and controls whether or not gift cards are usable.

While gift card holders who miss the deadline have the option to file a claim to recover the value of their cards, their claims will be processed behind the company’s major creditors. Although gift card holders are most likely out of luck when a store files for bankruptcy, they should still hold onto the plastic just in case. Take Sharper Images customers, for example.

In 2008, Sharper Image stopped accepting gift cards when the company filed for bankruptcy protection. A month later, the store announced they would only accept gift cards if the holder bought double the value of the card (e.g. a $100 gift card could only be redeemed if the consumer bought at least $200 worth of merchandise). When customers complained, the company told them they could file claims, just like other creditors. Three years later, the company announced plans to settle up with remaining gift card holders. Those who could provide proof of having a Sharper Image gift card, however, were given priority over those who couldn’t.

When Borders bookstore shuddered their shelves, the company had nearly 18 million gift cards outstanding, representing close to $211 million in load value. Although the courts initially acknowledged that gift card holders were due a settlement, nobody bothered to tell people to file claims. Thus the claim deadline passed, bankruptcy proceedings continued and the courts ultimately ruled it was too late for Borders cardholders to file claims in order to be compensated. To date, Borders gift card holders have not received anything.

In 2008, Linen’s n Things (LNT) filed for bankruptcy protection. Although the company accepted gift cards throughout the proceedings, they also sold gift cards nearly up until the moment the doors closed for good. During restructuring, another company purchased the failing company’s name and website. Although from a consumer perspective, LNT appeared to up and running online, the new holding company refused to accept gift cards issued by the LNT store.

When Coldwater Creek filed for bankruptcy protection, they too allowed customers to redeem gift cards and merchandise credits throughout the process. However, when a new company bought the brand and relaunched the website, the gift cards became useless. According to the new company’s website, “Coldwater Creek in its original incarnation went through the bankruptcy process, which makes it impossible to honor any financial agreements with the previous company.”

The Coldwater Creek, Sharper Image, and Linens ‘n Things stories are not unusual. In the last few years, nearly every major brand I’ve seen turn to bankruptcy has emerged as an online-only version of it’s former self under the direction of a new owner. As part of the sale, the new online business acquires assets such as inventory, brand name, website URL, social media account profiles, social media followers and customer mailing lists. But the new business does not take on liabilities such as outstanding gift card.

From a business perspective, I get it. The sale allows the company to pay bills owed to merchandise suppliers, commercial property owners and other creditors who are owed thousands, if not millions, of dollars. Those businesses need that money to pay their bills, pay their employees and stay afloat themselves. From a consumer (and a marketing) perspective, I don’t get it. Gift card holders are the people you want to stay engaged with your business as you rebuild and buy merchandise from your website when it relaunches. I would not only accept those gift cards, I’d offer consumers a discount if they redeem their outstanding gift cards during the grand reopening period. But that’s just me. 🙂