At Some Troubled Retailers, A Tug-of-War Over Gift Cards

Gift cards totaling about $66 billion will be tucked into birthday, wedding and holiday cards this year. About one-third of that total will be spent within 90 days and another third within six months, said Brian Riley, a bank-card research director for TowerGroup. Some $20 billion worth will linger in drawers for longer.

Delayed gratification in this case could be a mistake. Retailers are struggling in the current economy, and if a gift-card issuer files for bankruptcy protection, there's a good chance that your card will become worthless.

Although fully bankrupt companies have assets, which are distributed to the firm's creditors, your status as an unsecured creditor puts you in line behind banks and other secured creditors. They will receive 100 percent of their investment before you get a dime. If you get anything at all, it's likely to be small, perhaps 5 cents on the dollar.

Sometimes a firm will ask a bankruptcy judge to let it honor gift cards. But don't count on that happening.

Several retailers have filed for bankruptcy protection recently or appear dangerously close. Gift cards from the Sharper Image are worthless; ditto for those from the Bombay Company.

Lillian Vernon, the once-popular catalog and online retailer, was sold to Current USA, which markets address labels, scrapbooking supplies and other stationery products. Current is accepting Lillian Vernon certificates at face value.

Linens 'n Things is also honoring cards for the full amount. So are Movie Gallery and Hollywood Video, which just emerged from bankruptcy.

Bankruptcy rumors are swirling around Circuit City. Customers should redeem its cards pronto.