While gift cards seem like an easy gift, and buying discounted gift cards at Costco adds value, they only make sense if people actually use them. My gift card pile at home has at least a couple from restaurants and retailers that no longer operate.

That’s actually pretty typical, and it happens frequently in retail and restaurant bankruptcies. Many, including Sears, Tuesday Morning, and Christmas Tree Shops, only accepted gift cards for a brief period after the company had filed.

“43% of U.S. adults currently have at least one unused gift card, voucher, or store credit,” according to a study from Capital One Shopping. “Average unused value per person is about $244. Total estimated unused gift card value in the U.S. is around $23 billion.

  • 20% have had a gift card expire before use.
  • 17% lost at least one.
  • 12% experienced a business closure before redeeming a card.

When a business closes under a Chapter 11 bankruptcy, it often honors gift cards for a period of time. Once that time has passed, your gift card generally becomes useless.

In the case of a Chapter 7 bankruptcy, the same thing could happen, or the bankruptcy court could invalidate all gift cards to preserve funds for creditors.

When you buy a gift card from a retail chain like Costco for another retailer, restaurant, or service, those cards are often sold by a third party. In the warehouse club, one of its gift card partners, Synergy World Inc., filed for Chapter 7 bankruptcy protection.

Costco customers may be out of luck

When Synergy World, which operated the Synergy Restaurant Gift Card program, first shared news of its Chapter 7 filing, it said it planned to honor its gift cards until Jan. 31, according to Parade.

“A sudden surge in redemptions reportedly forced the program to shut down earlier than planned,” and many card owners found that the over 100 restaurants in the program were not able to allow redemption of the gift cards.

Cardholders rushed to redeem them once the bankruptcy became public knowledge.

More Bankruptcy:

  • Key auto parts and services company files Chapter 11 bankruptcy
  • Key travel brand files for Chapter 11 bankruptcy
  • Self-driving-car company files for Chapter 11 bankruptcy protection
  • 35-year-old consumer company files Chapter 11 bankruptcy

“Local restaurant owners report a 200% increase in customers using Synergy cards as word spreads about the impending deadline,” 10 News San Diego reported.

Synergy World has said it’s in the process of filing for Chapter 7 bankruptcy, but it has not actually filed as of Feb. 2.

Gift cards are often serviced by a third party, not the company where they can be redeemed.

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Synergy World confirms the end of gift card redemption

Although the Synergy World website makes no mention of the impending shutdown or the end of gift card redemption, the company did confirm the news on its Facebook page.

A post on Jan. 28 shared Jan. 31 as the last day for gift card redemption, and a Jan. 30 post immediately ended the program.

“Please be advised that the Synergy Restaurant Gift Card Network Program has been discontinued. Final redemption date: Synergy Restaurant gift cards (both plastic and eGift) are no longer redeemable effective immediately,” the post read.

Related: Costco Anywhere Visa vs. Sam’s Club Mastercard: How the warehouse club credit cards compare

What happens to gift cards in a bankruptcy: FAQs

“Federal gift‑card rules limit fees and expiration dates but do not protect consumers when an issuer files for bankruptcy or goes out of business,” according to Consumer Reports.

  • Are gift cards protected if a company files for bankruptcy? Generally, no. Unused gift cards are usually treated as unsecured claims in bankruptcy proceedings — meaning they’re low priority and often receive little or nothing after secured creditors are paid. There’s no federal law that guarantees full redemption of gift card value just because you hold a card when the issuer goes bankrupt, according to 11 U.S.C. § 507: Priorities (Unsecured Claims) of the U.S. bankruptcy code.
  • Can the bankruptcy court force the company to honor gift cards? Not automatically. The company must ask the bankruptcy court for permission to continue honoring gift cards during bankruptcy, and the court may or may not grant it. If permission isn’t granted, the cards may effectively be worthless, reported Forbes.
  • What legal status do gift card holders have in bankruptcy? Gift card holders are generally considered unsecured creditors under U.S. bankruptcy law. This means they must file a claim against the bankruptcy estate if they want to attempt to recover value from their unused cards, according to LegalClarity.
    Unsecured creditors are paid after secured creditors and administrative expenses.

    Often, there is little or no money left for unsecured claims in a liquidation (Chapter 7).

Synergy cardholders are likely already out of luck, but consumers should be wary of any business that may end up in bankruptcy.

“There’s no simple solution, but if a retailer is on shaky financial ground, use your gift card while you can, according to Hamzy Law.

Some Costco warehouses have been refunding the gift cards, according to Parade, while others have not. The company has not shared a public statement on the Synergy situation.

Related: Starbucks slashes its menu, removing 13 drinks