What happens to a store credit card when the store goes bankrupt?
We all know COVID-19 has caused nothing but misery in a wide range of industries, but retail could easily be one of the hardest hit. A recent study by Coresight Research even predicts that as many as 25,000 retail stores may have to close their doors by the end of 2020, even though we could face the impacts of the coronavirus much longer than that.
The study goes further by saying that 55% to 60% of stores closed are likely to be in U.S. malls, which shouldn’t be a huge surprise given that malls were in trouble long before the pandemic hit. . Either way, this news is another blow to our somewhat fragile economy, and it will likely mean that we will emerge in 2021 with far fewer options for shopping in brick and mortar stores.
What happens to your store credit card?
But what if you have a store credit card for a retailer that no longer exists beyond this year? This incredibly timely question is one that many Americans will probably ask themselves sooner rather than later.
JC Penney, J. Crew, and Neiman Marcus – all retailers that have their own store cards – have already filed for bankruptcy protection, and there will likely be many more to follow closely. While some store credit cards are true “store cards” that can only be used in a single store or family of stores and others are offered by major issuers like American Express or Visa, the end result is the same.
Here’s everything that can happen when your favorite store closes and you have a credit card in the store.
Your account will be closed
If a retailer only closes some of their stores but keeps others open, or maintains an online presence, nothing may change with your store card. But if the store the card is associated with closes completely, that’s another story.
In this case, your account will likely be closed, which makes sense since you can only use store cards with the specific retailer that offers them anyway. You will receive a notice from the store or card issuer that will let you know what’s going on, which can give you time to plan.
Closing your store card might not matter to you if you don’t have revolving debt, but you could see an impact on your credit score if you do. This is because your credit usage will increase due to the card being closed and you no longer have any available credit on that account.
As an example, let’s say you have multiple credit cards with total limits of $ 10,000, but your store card had a limit of $ 2,000. If your store card closes, your total available credit drops to $ 8,000. If you have revolving debt on other cards, your credit usage will suddenly increase. Most experts suggest keeping your credit usage below 30%, or $ 3,000 in total balances for every $ 10,000 of available credit you have.
Your rewards will disappear
If you earned any rewards associated with a store when you used your store card, those rewards will go at the same time as the store itself. If you have the option to spend in-store rewards before your store has completely closed, you should give it a try.
For example, JC Penney has a store card and its own rewards program, but this retail giant filed for bankruptcy on May 15, 2020. If you’re worried that JC Penney will soon cease to exist as a you probably should be, you should head to a local store or head to the JC Penney website to spend all the rewards you currently have. As of this writing, JC Penney stores are still open and the company’s website is fully operational.
Your credit card balance will not disappear
Unfortunately, closing a store doesn’t allow you to pay off your debt. You will continue to receive billing statements from the card issuer and you will need to repay any amounts you owe on your card.
Since store cards tend to have high APRs and you no longer receive the benefits of your card, such as store discounts, you should strive to pay off closed store card balances as quickly as possible. . If you need the time but are tired of paying an exorbitant interest rate, you should also look into 0% APR rate credit cards that allow you to consolidate debt and avoid interest. for a limited time.
Our advice for closing your store card
Keep in mind that when your store card closes, the card issuer that offers that card may suggest another card. However, you don’t have to accept their offer to apply for a new card, and you should still take the time to explore all of your options.
When you close your store card, we suggest you pay off your balance and switch to a new card with better benefits. While store cards can help you earn in-store discounts and are often easier to obtain, traditional credit cards tend to provide better rewards and benefits for cardholders. Best of all, the rewards you earn with a traditional cash back credit card or rewards card can usually be redeemed in a number of ways, and not just at one store.
Our credit card guides can help you find a new credit card with better benefits, so be sure to browse all the best card deals to find the one that best suits your goals.
What happens to gift card balances when a store closes?
Now, let’s face another important question: Where do gift card balances go when a store closes? Often you will not receive a refund. However, there are steps you can take if you have a gift card balance with a retailer that no longer exists.
According to Consumers Federation of America, you should start by trying to contact the company to see if they will reimburse you voluntarily. This can be much easier to do if you had a gift card for a local small business versus a giant one like JC Penney, but they recommend contacting the city or town hall where the business is located to find contact details. .
If that doesn’t work, you can also check if you paid for the gift card with a credit card. If you did, the Consumer Federation of America says you can file a chargeback on your credit card and potentially get a refund that way.
Then they recommend contacting a government agency that offers consumer protections in your state. You might be able to get your money back this way, but it won’t hurt.
Finally, you can file proof of your claim with the US bankruptcy court. When you complete this step, you will be added to a list of creditors to whom the business owes money. This does not mean that you will get a refund for your gift card amount, but it does mean that you are on hold for a refund if money becomes available.
Could your home insurance policy come into play?
Interestingly, it’s also possible that you might make an insurance claim on your gift cards if the store associated with them closes. Earlier this year, Erie Insurance added something called “Local Gift Card and Certificate Refund Coverage” as part of their ErieSecure Home® policies.
This coverage provides reimbursement of up to $ 250 per gift card for any locally owned and independently operated business within 100 miles of the consumer’s home. Coverage applies if the business closes within one year of purchasing the gift card, and a total coverage limit of $ 500 applies per policy period.
“In these uncertain times when so many small businesses have to restrict access or shut down their physical location, many small business owners are encouraging customers to purchase gift cards to generate cash flow,” said Bob Buckel, vice -President of Erie Insurance. in a press release. “We understand that consumers may be worried about buying a gift card from a business that might not be able to stay open due to financial difficulties and we want them to feel confident to do so. these purchases knowing that their investment will be protected by their ERIE policy. “
Whether you have home insurance with Erie Insurance or another provider, you can check with your policy to see if gift cards are included in your coverage.