For a generation, gift cards have been the holiday present of last resort -- the thing to buy when nothing comes to mind.
This year, however, givers have more to worry about than whether the gift card will get shoved in the back of a drawer.
The bigger issue is whether a gift card will become worthless if it involves a retailer that filed for bankruptcy protection. The retail industry saw a rash of bankruptcy filings as it lost sales to online retailers this past year -- and that could only get worse in 2018.
"Gift cards are, technically, unsecured debt of the bankrupt retailer and bankruptcy law gives them no special protection," said Melissa Jacoby, a law professor at the University of North Carolina at Chapel Hill, who teaches bankruptcy law.
That's the bad news. The good news is that retailers filing Chapter 11 reorganizations often ask the court to let them continue to honor gift cards, she said. The request is often granted.
It's important because it's hard for a business to continue if customers don't have assurances that gift cards will still be good for purchasing merchandise and that patrons can make returns.
Shaky retailers fall into three categories:
•At risk. Moody's, the credit rating agency, finds that nearly two dozen retailers were among the companies with among the lowest marks in mid-December, which can put them at risk.
Among them were Sears and Kmart parent Sears Holdings, clothing retailer J. Crew Group and teen-oriented accessories chain Claire's Stores. Others include Neiman Marcus, nutritional supplement seller General Nutrition Center, better known as GNC, and footwear companies such as Nine West, TOMS shoes and Calceus Holdings, the parent company of Cole Haan.
•Filed and trying to reorganize. Some major retailers are hanging by a thread in trying to stave off bankruptcy filings. A good example is Toys R Us, which filed and plans to try to reduce it debt. And in the worst cases in the past year, some chains have moved directly to liquidate their businesses and close the doors.
•Destined to liquidate. These are retailers in such bad shape they didn't try to reorganize. They just closed their doors and blew out their merchandise. The past couple of years have been particularly hard on sporting goods stores, some of which have shut down. Sports Authority, for instance, went belly up, closing all of its about 400 stores.
Each case has its own set of risks when it comes to gift cards.
Among those retailers at risk, one national bankruptcy expert says he doesn't worry that much about whether retailers like Sears would honor gift cards were it to file for a bankruptcy reorganization.
"If they go into Chapter 11, they immediately seek court authorization to honor gift cards," said Chuck Tatelbaum, senior attorney with the Tripp Scott law firm in Fort Lauderdale, Fla. "If they don't, it will kill sales."
Toys R Us remains a toy-industry force this holiday season despite having filed for a Chapter 11 bankruptcy this year. It won court permission to honor gift cards, he said.
Gift card redemption isn't always a sure bet.
If a store liquidates, gift card holders become the same as other unsecured creditors, said Tatelbaum.
There are other risks, too, of having gift cards of retailers involved in a bankruptcy. The retailer may emerge from the process in better financial health, but with fewer stores.That makes the chain less convenient. Also, it may break relationships with key suppliers, and may not be as well stocked as in the past.
One surefire remedy to the dilemma: Don't let gift cards sit around. If you have any doubt about the financial health of a retailer and you get one of their gift cards, get to one of their stores and spend it.
Gift cards tips
For the 11th year in a row, gift cards were the most requested gift. If you received one, here are some tips to get the most out of them:
The fine print: Read the card's terms and conditions. Pay close attention to whether the card is redeemable only at a certain store or location.
Fees: Some state laws, including Florida, bar service fees and expiration dates on store gift cards, but the rules on cards branded with the name of a credit card company are stricter. These cards cannot expire for at least five years and cannot have a service fee deducted unless it has not been used in 12 months.
Bonus cards: If you received a bonus gift card, sometimes called bonus bucks, most of these will expire. Some stores and restaurants treat these as coupons and have restrictions on how they can be used. Also, many of these gift card deals are available through Dec. 31 so consider buying more cards to use yourself.
Protect your card: Some gift cards can be registered as credit cards on websites listed on the card, which can protect them against theft or loss. Also take photos of the front and back of the card or write down card details as some companies will replace lost or stolen cards if you can provide specifics. Receipts with card information are good to hold on too.
Trade it: If you get an unwanted card, you can sell it or trade it for another card at sites like CardPool.com, Raise.com and CardCash.com. At most Target stores, you can trade almost any gift card for a Target gift card. Learn more at Targettrade-in.com. Just know you won't get the full value of the cards.
--Kelly Tyko, TCPalm.com