Circuit City filed for Chapter 11 bankruptcy protection on Monday, according to info found here at CNN Money. It is one of a number of stores which have gone out of business or have been faced with financial troubles recently, companies ranging from Sharper Image to Linens N Things. With the Christmas shopping season fast approaching, how do shoppers know if Christmas gift cards are safe to buy - or whether to simply hand over cash? Although a gift card can be convenient, with lovely graphics and designs, and certainly tailored to a Christmas gift recipient's taste, it might not be a wise choice - financially speaking.

Circuit City gift cards and Christmas gift cards - are they safe to buy?

For now, Circuit city management seems to be taking the stand that gift cards will be honored. A call to a local Indianapolis Circuit City location noted that all stores were up and running and accepting gift cards - with one exception. The Circuit City employee noted that the Circuit City Outlet store in Indianapolis (which does carry the name Circuit City, according to the local employee) would not honor gift cards.

Even though they are not technically owned by Circuit City, the Circuit City outlet store does carry the Circuit City name and is a liquidation store. This could be a bit confusing to customers who see the name Circuit City on the store exterior....so now you know. No gift cards at those stores. I actually asked the question, "But you are called Circuit City?" The answer was yes but they were clear that they were not owned by Circuit City. Maybe I'm the only one that finds this a bit confusing but this was the information given me.

Should owners of Circuit City or Christmas gift cards cash them in immediately?

Perhaps so. According to information at Snopes.com, found here and updated as of November 10, 2008 (including Circuit City Chapter 11 bankruptcy information), the information is classified as "partly true", possibly due to the complexities of Chapter 11 business bankruptcy filings. Some companies pull out of their slump, some do not, and some have temporarily or permanently suspended the use of gift cards.

I had experience with this myself when Sharper Image was in trouble. When calling local stores, I was told that gift cards would not be honored "for the time being". Although those who purchase Christmas gift cards - or other gift cards - often think of them as being the same as giving cash to someone, this is not necessarily true, .During a bankruptcy, the cards can be seized as assets of the company. Whether they will be seized during Circuit City Chapter 11 bankruptcy proceedings is not clear. What is clear is that customers have not been able to use gift cards in some bankruptcy cases, including that of Levitz furniture, after the company filed for bankruptcy more than once. Eventually, gift card were no longer considered usable. The customers? Out of luck.

Christmas gift cards might leave recipients unable to use them

Last year, shoppers bought 26.3 billion dollars worth of gift cards according to info here but if a store goes under, that could leave both Christmas gift card purchasers and those recipients with nothing. No actual Christmas gift and not a cent to spent in the stores. Just ask those who purchased cards from companies like Sharper Image and Bombay Company, among others. Perhaps it would be better to simply hand someone cash, slipped into a lovely envelope or wrapped as creatively as you'd like, in a special box or package and let them decide where to spend the money. Last time I checked, cash could be spent in the Circuit City stores which are still open as well as any of the stores which offer Christmas gift cards. None other than Consumers Union is recommending that Christmas shoppers avoid gift cards this holiday season.

Sources:

Personal experience with gift cards, phone call to Sharper image during bankruptcy, phone call to Circuit City and outlet store:(317) 895-0623

Circuit City to Stay Open in Bankruptcy: http://money.cnn.com/2008/11/10/news/companies/circuit_city/?postversion=2008111013 or here

Bankruptcy is in the Cards, Snopes.com: here

Gift Card Holders May be Out of Luck in Retail Bankruptcies: here or http://www.latimes.com/business/la-fi-giftcards10-2008nov10,0,2342051.storyChristmas gift cards may be unwise buyCircuit City, Chapter 11 bankruptcy, assets seizedAre gift cards honored if a company or business files for bankruptcy?Gift cards can be seized in some bankruptcy proceedings, leaving customers and Christmas gift card recipients without anything but the card.http://www.latimes.com/business/la-fi-giftcards10-2008nov10,0,2342051.storyhttp://www.snopes.com/politics/business/bankruptcies.asp