Oh no—not another one! Toys ‘R’ Us recently declared bankruptcy—the second largest ever in retail history. Other chains that have declared bankruptcy this year include Aerosoles, Payless, RadioShack, Wet Seal, BCBG Max Azria, hhgregg, Gymboree, Perfumania, The Limited, rue21, Vitamin World. Every week it seems like another retailer waves the white flag.
Although many bankrupt retailers are not completely shutting down, they are closing hundreds of stores across the country. And some of these zombie retailers will eventually collapse (a Chapter 11 reorganization that many companies declare can quickly turn into a Chapter 7 shut-down), as Amazon eats up more market share and dollars keep shifting to the internet. So what does that mean for you? What should you do if one of your go-to retailers declares bankruptcy—or you’re worried it’s on the edge (attention Kmart and Sears shoppers!)? Here are a few tips (also check out my video):
Use up those gift cards! In a bankruptcy, you might end up holding a worthless piece of plastic if the retailer goes belly up and the bankruptcy court doesn’t offer a deal to gift-card holders. Creditors come first when it comes to store obligations. And just forget about buying gift cards from a bankrupt chain—even if they seem like a good deal on those second-hand gift-card sites, buying them is just not worth the risk.
Flash a credit card. If a store is having going-out-of-business sales, go for it—but be sure to protect yourself by using a credit card. A credit card won’t make you pay if you buy something online and the item doesn’t show up. (But skip using the store’s credit card since any points you build might end up being worthless.) Also, your credit card might offer a warranty on a purchase in case the product craps out and the store isn’t there to take it back. Be sure to check with card issuers and find out if any offer extended warranties on purchases. As for those store-bought extended warranties, just say no! According to studies by Consumer Reports, they rarely pay off. If you already bought one, find out if the issuer will still honor the warranty if the retailer that sold it to you goes under.
Forget about layaway! Yes, it’s that time of year again when layaway plans can help you get ready for the holiday shopping season. But if a store goes under, you could be out of luck. If you've already signed up and put down a deposit, speed up those payments if possible. But keep in mind that if you back out, you'll pay a penalty fee. In the case of Toys 'R' Us, that's $10.
Consider all purchases final sale. If you buy anything from a retailer in bankruptcy, don’t bank on returns. Buying a high-ticket item that you might want to return later might be a risk not worth taking.