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Dan Ray

As Borders flirts with bankruptcy, it's time to use their gift cards

I got a gift card myself for Christmas, and I'm heading to Borders today to use it.

That's because news leaked out last week that the long-troubled bookseller has hired bankruptcy attorneys to help it sort through its options.

Consumers should do themselves a favor and get to the nearest Borders now to make sure they get full value from their gift cards. While Borders has said it still hopes to evade bankruptcy, I'd get there pronto. The history of retailers honoring gift cards after bankruptcy filing is mixed, and your right to redeem a card is not guaranteed.

In Chapter 11 bankruptcy, companies try to restructure instead of shutting down, and use bankruptcy court to reorganize debts. Those companies tend to keep honoring gift cards to keep their customers loyal.

Even if a retail chain does go Chapter 7 -- liquidating and shuttering its stores -- the shutdown doesn't have to happen instantly. In 2008, when Circuit City closed its stores, it was upfront about its procedure: It held final inventory sales at each store, with gift cards honored during the liquidation period. That's not the ideal situation for a gift card holder, though -- retailers that are liquidating don't restock their shelves. If you dawdle, the pickings may be slim. You won't be happy if your choices are down to "Geologic Features of Central Texas" or a pawed-over copy of "Knitting for Dummies."

But even if a company declares bankruptcy, shuts its doors and leaves you holding a gift card, don't get out the scissors. Competitors may step in. In recent years, the competitors of firms that have gone bankrupt have seen opportunity in their former competitor's demise. So if the worst happens to Borders, a Barnes & Noble or an Amazon might be smart to scoop up its customers by honoring their fallen competitor's gift cards.

It's happened before: In 2008, when Sharper Image went belly up, Brookstone honored Sharper Image's gift cards. The same happened when Bennigan's and Steak and Ale went down for the count -- several other restaurants accepted the gift cards, eating the expense in the hopes of attracting new patrons.

We wrote about the topic of bankruptcy and gift cards when the recession was going strong, and that story's tips on dealing with gift cards from bankrupt stores still stand up. Particularly this one: Act fast.

That's what I'm doing.

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