Cashay logo

Empowering your money

Hertz, JCPenney and other bankruptcies: What happens to your store credit card, gift card, and rewards?

COVID-19 continues to claim big retailers.

As the outbreak forcibly closed stores and restaurants, companies that struggled and teetered on the verge of existence pre-pandemic are beginning to file for bankruptcy.

Since the beginning of the year, the following retailers and brands have filed for bankruptcy.

  • Hertz

  • J.Crew

  • JCPenney

  • Pier 1

  • Neiman Marcus

  • Papyrus

  • Modell's Sporting Goods

  • True Religion

If your favorite retailer or company becomes the next casualty, what happens to any gift cards or store credit cards that you have? Here’s what you need to know.

Woman using the credit card at the Shopping Mall spread payments for products and services,
Woman using the credit card at the Shopping Mall spread payments for products and services,

Gift cards: Use it or lose it

For the 50% of Americans who are sitting on more than $20 billion in unused gift cards and other store credits, or $167 on average per person, the coronavirus pandemic is now forcing your hand to spend that money before it might be too late.

Saving that money for a rainy day or accumulating cards to offset the cost of a big-ticket purchase typically sounds prudent, but those rules don’t apply when a retailer is going under.

This is the time you want to spend as soon as possible, said Ted Rossman, industry analyst at CreditCards.com and Bankrate. Gift card values don’t appreciate over time plus inflation can eat away at the value. Once you receive a gift card— even if the store is stable— Rossman said it’s best to plan your purchase and spend it.

A selection of gift cards in a store in New York on Tuesday, March 8, 2016. (Photo by Richard Levine/Corbis via Getty Images)
A selection of gift cards in a store in New York on Tuesday, March 8, 2016. (Photo by Richard Levine/Corbis via Getty Images)

Matt Shultz, chief credit analyst at LendingTree, also agreed and said “the best thing you can do is find a way to spend [a gift card.]” Unredeemed gift cards or store credit is tantamount to burning cash.

But not every bankruptcy affects gift cards nor does it mean that the store or restaurant will go out of business and become a relic of a bygone era. Some bankruptcies are about reorganizing debts from real estate or inventory, and the store doesn’t actually go out of business.

Yahoo Money sister site Cashay has a weekly newsletter.
Yahoo Money sister site Cashay has a weekly newsletter.

In other cases, stores do go out of business. When this happens, there’s sometimes a deadline to use gift cards that precedes the official closing date. Toys “R” Us, for example, stopped accepting gift cards in April 2018, but didn’t officially close its doors until June 2018.

Wobbly retailers fall into three categories that increase in severity: at-risk, filed and trying to reorganize, and destined to liquidate. Technically, gift cards represent liabilities because the store’s money is owed to its customers, but these are a low priority in the bankruptcy pecking order if you file a claim, Rossman said.

Store cards: You still must pay

Woman paying for jewelry with contactless payment technology in a clothes store
Woman paying for jewelry with contactless payment technology in a clothes store

A store’s financial misfortune does not signal a spending free-for-all. Even if it files for bankruptcy and ultimately shutters, you still have to pay your full balance on your store credit card.

“Don’t make the mistake of thinking that your debt will be wiped clean because the store has closed,” Shultz told Cashay. “If you do, you’ll find out the hard way just how wrong you are.”

Yahoo Money sister site Cashay has a weekly newsletter.
Yahoo Money sister site Cashay has a weekly newsletter.

Store credit cards are always backed by a lender, typically a bank, so even if the store ceases to exist, the bank will still collect on its debts. Stiffing the bank on your bill means your credit score also will take a serious dent, meaning it will be harder for you to secure credit lines in the future.

Rewards: Use them!

If your credit card from a store that’s going belly up has accumulated rewards or points, those too will be forfeited by a certain date. But you may have time to redeem them before losing them.

For instance, Hertz is still honoring vouchers and rewards points. Last year when Sears filed for bankruptcy protection, it still honored its generous rewards program because the program, its remaining stores, and other assets were sold to a new company controlled by Edward Lampert, the former Sears CEO and a hedge fund manager.

In some cases, the program’s terms may change under bankruptcy. That can happen to an airline’s frequent flyer program. That could mean more black-out dates or increasing the number of miles needed to get a free ticket. In any case, it’s always better use the rewards sooner rather than later.

Stephanie is a reporter for Yahoo Money and Cashay, a new personal finance website. Follow her on Twitter @SJAsymkos.

Read more information and tips in our Credit cards section

Read more personal finance information, news, and tips on Cashay

Follow Cashay on Instagram, Twitter, and Facebook