Now it's really ‘buyer beware'

Better Business Bureau warns of consumer pitfalls in a bad economy WASHINGTON — It is not pretty. We all know what “it” is: the economy. Here is the conundrum. Businesses are cutting prices to attract customers; however, how will you know if the business is in trouble and may not deliver on its promises? As a result of the declining economy, the number of retailers closing their doors has increased substantially, leaving confused shoppers wondering what will happen to undelivered goods, gift cards and outstanding warranties. Your Better Business Bureau (BBB) offers this general advice for consumers on what to do if a retailer closes up shop. The current freeze on credit is having a serious impact on businesses. Bankruptcy filings by U.S. businesses rose 67 percent in September over the previous year, according to data compiled by Automated Access to Court Electronic Records. Some of the bigger names filing for bankruptcy in 2008 include A Sharper Image, Linens n’ Things, Lillian Vernon, Levitz Furniture, Mervyn’s and more recently Circuit City. Retailers commonly file for Chapter 11 bankruptcy, which means the company intends to reorganize and continue to do business, or Chapter 7, which means the company will close up for good and liquidate any assets in order to pay creditors. If a business intends to continue operations under Chapter 11, it will often continue to redeem gift cards, fulfill services and deliver on goods. Some Chapter 11 bankruptcies, however, quickly turn into Chapter 7 cases and then the chances for the consumer to receive any compensation are greatly diminished. In order to prevent problems, consumers are urged to deal with businesses they trust. Before making a purchase, check the BBB report on the company. If the report is adverse and there are many consumer complaints, particularly in the past 12 months, your red flag should go up. In addition, the more expensive the purchase, the more you have to risk. So, proceed with caution and perform your due diligence. However, despite your best efforts to identify companies in financially troubled waters, there is no crystal ball and you may end up having to deal with a bankrupt firm. The following is advice from the BBB on steps you can take if a retailer files for Chapter 7: Goods or Services Due Bankruptcy law is specific regarding who will benefit first in the case of a retailer’s liquidation. Unfortunately, customers are at the back of the line. Typically, the money gained from the selling of the company’s assets goes to paying back secured creditors, as well as any employee wages, before whatever is left over is divvied among customers who didn’t receive the promised services or goods. Customers who paid with credit cards, though, may be able to dispute the charge with the credit card company and get their money back—for this reason, among others, the BBB highly recommends consumers pay with a credit card. For those who paid by debit card, check or cash, they must file a claim with the bankruptcy court administering the process—the deadline is typically 90 days after the filing date. More information on filing a claim, including downloadable forms, is available online at www.uscourts.gov. Warranties The validity of any outstanding warranties varies for each bankruptcy. If a retailer goes out of business, the consumer may be able to rely on the manufacturer’s warranty. If a manufacturer goes out of business, the consumer may be able to rely on any warranties provided by the retailer. Many extended warranties and service plans are provided and administered by third parties and are typically not affected by a retailer or manufacturer going bust. Gift Cards In cases of Chapter 11 bankruptcy, courts will decide if the business must honor gift cards or certificates. If the business has filed Chapter 7 bankruptcy, the holder must file a claim. In some cases, consumers might actually get at least part of the value of the card back. Some retailers have tried wooing new customers by accepting a bankrupt competitor’s gift card but this is generally a rare circumstance. The BBB advises that consumers redeem gift cards as soon as possible in order to avoid any headaches with bankruptcy files and court actions.