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Toys 'R' Us To Honor Gift Cards For Next 30 Days

PHILADELPHIA (CBS/CNN Money) -- Consumers have 30 days to use their Toys "R" Us gift cards.

The struggling company declared bankruptcy in September. Toys "R" Us will shut or sell all of its 735 stores in the United States, according to court documents filed early Thursday. About 31,000 workers in the United States will be laid off.

Toys "R" Us told CBS Philly that gift cards, rewards dollars and endless earnings will be honored for the next 30 days. However, once the 30 days are up, they will no longer be valid.

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This comes as Sen. Chuck Schumer wants Toys "R" Us to cash out unused gift cards.

"The music is about to stop for the iconic retailer," Schumer said in a statement on Wednesday, "and consumers could be left in the lurch."

Schumer said that once the liquidation is complete, gift cards could be "as worthless and unwanted as a lump of coal in a stocking." He also wrote a letter to Maureen Ohlhausen, acting chairwoman of the Federal Trade Commission, asking the FTC to make sure the retailer is doing everything it can to honor the gift cards.

A representative from the senator's office said Schumer reached out to the FTC after hearing from concerned constituents.

Toys "R" Us is currently honoring its gift cards. If the company closes all of its stores, it may no longer let customers cash them in.

A company's customers tend to land "pretty close to the bottom of the totem pole" in bankruptcy cases, said Brian Davidoff, a financial restructuring attorney for Greenberg Glusker.

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Judges usually make bankrupt businesses pay their secured creditors, like bank lenders and vendors, first. Customers with gift cards are unsecured creditors, Davidoff explained.

If Toys "R" Us wants to honor gift cards after the bankruptcy filing is complete, it should ask the bankruptcy court to prioritize customers. If that happens, the secured creditors can raise an objection.

It's up to the bankruptcy court to decide if Toys "R" Us can honor the cards.

If that happens, it's unlikely that customers would receive a cash redemption, Davidoff explained.

"Lenders are going to fiercely resist that," he said.

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Bankrupt retailers may eventually honor a gift card, even if they don't right away, said FTC spokesperson Frank Dorman. But a competitor may be willing to honor a gift card given by a bankrupt company, he noted.

"If you buy a gift card from a company that files for bankruptcy or goes out of business, it may be worth less than you had anticipated," Dorman said.

So if you've got Toys R Us gift cards lying around, you might want to buy something soon.

The-CNN-Wire™ & © 2018 Cable News Network, Inc., a Time Warner Company. All rights reserved.

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