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Gift Card Holders Receive Bad News in Borders Bankruptcy Ruling

August 31, 2012

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A U.S. bankruptcy judge told Borders gift-card holders with remaining balances that the failed bookstore doesn’t owe them any sort of restitution, according to a report from The Wall Street Journal.

The decision, however, is limited to gift-card carriers who failed to file claims for the balance of their cards before a court-order deadline last year. After thousands of people with unspent cash on their Borders gift cards asked for compensation, Judge Martin Glenn scolded them for failing to file claims before the deadline.

These card holders, however, argued that, before filing for bankruptcy, the bookstore failed to inform them that its stores would be permanently shuttered last September.

In its defense, Borders argued that it did all it could to notify customers of its imminent demise, and gave them plenty of time to file a claim, and the bankruptcy judge hearing its case apparently agreed with both arguments.

The key portion of the debate, according to Judge Glenn, was that it would have been impossible for Borders to find the people who actually paid for the gift cards and notify them of the impending changes.

In Judge Glenn’s opinion, he noted that 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."

In response, however, the attorney representing the gift-card holders said he plans to appeal the judge’s ruling, claiming that it unfairly hurts "ordinary consumers" who were hurt by the company’s filing.

And the stakes are indeed high for so-called "ordinary" consumers. Sources say that, as of June 2011, there were roughly 17.7 million Borders gift cards floating around that still had $210 million of cash waiting to be used.

And if the bankruptcy judge added these claimants to the already long list of creditors in the bankruptcy case, other unsecured creditors would rank below the gift-card holders in terms of priority.

The judge, it seems, found such a scenario untenable, given that the people who held gift cards at least had the opportunity to regain their money before Borders headed to bankruptcy court.


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