What to Do If Your Favorite Store Files for Bankruptcy
J.Crew, Neiman Marcus, JCPenney, Pier 1 Imports: These are just a few of the retailers who filed for bankruptcy during the coronavirus pandemic.
Filing for bankruptcy doesn’t necessarily mean these stores will automatically close, but sometimes chains will end up closing stores. And while you wait to see what’s happening with your favorite brands, you might be wondering how filing for bankruptcy will affect you.
Because believe it or not, it can. If you are a member of an online loyalty club, have a store credit card or need to pay back a debt, now is the time to take a look.
Bankruptcy does not guarantee closure
Chapter 7 bankruptcy is the complete liquidation of a negative business. But more often we hear about Chapter 11 bankruptcy.
When a retailer submits a Chapter 11 application, they are not admitting to be closed. Rather, it is an admission that its finances are in bad shape and the company wants to restructure its debt to make it more manageable.
Sometimes companies even go through bankruptcy proceedings more than once to restructure their debt a second time, sometimes referred to as “chapter 22”.
But it may take some time before the retailer announces the closure, if it ever decides to close at all.
“It’s very important to note which bankruptcy the store is filing for and what it plans to do next,” said Julie Ramhold, consumer analyst at DealNews.com . “Usually, when they save the file, they confirm their next steps shortly thereafter, if not at the same time.”
If stores are announced to be closed, Ramhold advised taking into account the details. Some chains may close some locations and allow others to stay, while some will close their physical locations but retain their online stores.
Don’t accumulate loyalty points or gift cards
If a store has filed for bankruptcy and looks like it is about to close, analyze any loyalty rewards or gift card balances you have. If you don’t spend them now, you may not be able to redeem them at all.
“The deeper [retailers] are in the closing process, the less likely they are to accept these alternative forms of payment,” Ramhold said.
She explained how it worked when Toys “R” Us closed: she announced that customers would have one month to use any unpaid gift cards.
If the network doesn’t shut down completely, you can still use whatever “free” money you have for this merchant. This is because if the shops closest to you are closed, it might not be worth the extra effort to visit a location farther away.
And even in 2020, not all gift cards or store credits can be redeemed online.
Think strategically about your store’s credit card
When a store files for bankruptcy, you can usually continue to use your store’s credit card, whether for regular purchases or items purchased during a liquidation sale.
But once the store closes, the credit card will be of no use. And on top of that, the remaining debts will not go away for you. The company that operates the card (the financial company, not the retailer itself) will continue to send you account statements and collect your payments.
If you have a store card and decide to use it during liquidation, be sure to schedule payment on it as soon as possible to avoid high interest rates.
Don’t be fooled by crappy liquidation sales
If a retailer closes its doors permanently, you can look forward to a must-go-style liquidation sale where you can usually buy anything that isn’t bolted on.
In this case, prices can be expected to decline in stages – 20% off, then 30% off, and so on – as the store gets closer to closing. Of course, stocks will not replenish after a few weeks, which means that if you wait too long to close a good deal, you may be missing out on your chance.
But if a retailer closes some stores or switches to an online-only format, don’t expect fabulous sales. Yes, your local store may advertise a business end-of-business sale, but they won’t be under the same pressure to unload their merchandise. Anything left before the closing date can be sent to other locations that remain open, or to a warehouse for online sales.
And whether one location or the entire chain is closed, pay close attention to the return policy, if any. Some locations may have a shorter return period, while others may declare all purchases made after a certain date as a final sale.