Borders Bankruptcy: Bad News for Borders Gift Card Holders - Atlanta Bankruptcy Law News

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Borders Bankruptcy: Bad News for Borders Gift Card Holders

Still holding on to that Borders gift card your grandma gave you two winters ago? I've got bad news for you: it's now worthless and there's nothing you can do about it.

On Tuesday, a bankruptcy judge held that Borders doesn't owe it's gift card holders who didn't use the cards before the company closed its doors and who failed to file a claim before the deadline, The Wall Street Journal reports.

Borders filed for Chapter 11 bankruptcy protection in 2011, listing $1.275 billion in assets and $1.293 billion in debts. In a Chapter 11 bankruptcy, the debtor company files a plan or reorganization, outlining how the company plans to restructure and become profitable again.

That can involve liquidating its assets, merging with another company, closing off branches of the business, or renegotiating its contracts. To cut down its expenses and pay off creditors, Borders liquidated its assets and closed 226 stores.

The suit, filed by Borders gift card holders, claims that the retailer "did nothing" to reach out to its "thousands" of gift card holders before closing its doors in September. Borders disagreed, contending that it wasn't responsible for notifying every gift card holder individually.

Judge Martin Glenn of the U.S. Bankruptcy Court in Manhattan essentially said, "Tough luck" to the card holders. According to Glenn, it would've been impossible for Borders to notify all of its gift card holders, and it had no duty to do so.

"Gift cards, as their name illustrates, are not intended to be used by the purchaser but are instead intended as gifts, so even if the debtors were able to identify the purchasers of the gift cards, they would have no way of tracing the ultimate recipients," Glenn wrote in his opinion.

Judge Martin Glenn noted that allowing the gift card holders to file late claims "would have a disastrous effect" on the company's ability to pay its creditors. With $210 million in unredeemed gift card balances outstanding, a large chunk of the proceeds from the company's liquidation would be going to its card holders rather than its creditors.

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