What To Do When A Business Goes Out Of Business

As a result of difficult economic conditions over the last few years, the number of retailers closing their doors has increased, often leaving shoppers confused and wondering what will happen to purchases they haven’t received. The same applies in situations where warranties or unused gift cards are involved.

The following is some advice from the Better Business Bureau on steps consumers can take if a retailer goes out of business but doesn’t officially file bankruptcy, as well as what you should do when companies file Chapter 7 or Chapter 11 bankruptcies.

If a Company Closes, But Hasn’t Officially Filed Bankruptcy

First, send the company a letter because their mail may still be forwarded. Physically go to their location to see if they left a message on the door for customers. Ask neighboring businesses if they have any information. Try to reach the owner. If you have merchandise in the store, contact the landlord to see if you can be given access to the company’s facility. As a last resort, contact law enforcement.


The validity of any outstanding warranties varies depending on the facts. If a retailer goes out of business, the consumer may be able to rely on the manufacturer’s warranty. If a manufacturer goes out of business, the consumer may be able to rely on a retailer warranty. Many extended warranties and service plans are provided and administered by third parties and are typically not affected by a retailer or manufacturer closing its doors.

Chapter 7 Bankruptcies

Under Chapter 7 bankruptcy law, the money gained from selling the company’s assets goes first to back taxes, secured creditors and employees. That usually depletes available assets. If any assets are left over, they are divided among unsecured creditors, including customers who didn’t receive services or goods already paid for.

Customers who paid with credit cards may be able to dispute the charge with their credit card company to get their money back. Others who paid by debit, check or cash, will need to file a claim with the bankruptcy court administering the process. The deadline is typically 90 days after the filing date. Visit www.uscourts.gov.

Chapter 11 Bankruptcies

A Chapter 11 bankruptcy allows the company to continue operations while it reorganizes for future stability. If a company files for Chapter 11 protection, they will often still redeem gift cards, fulfill services and deliver on goods. Unfortunately, some Chapter 11 bankruptcies are unsuccessful and convert into Chapter 7, which leads to closure and complete liquidation. At that point, the chances for the consumer to receive any compensation are greatly diminished.

Unused Gift Cards

Under Chapter 7 bankruptcy law, the gift card holder must file a claim through the courts. Under Chapter 11 bankruptcy law, courts will decide if the business must honor gift cards. To avoid problems, the BBB advises that consumers redeem gift cards as soon as possible.

For more information, visit www.bbb.org.