Image by Getty Images via Daylife

With the holiday season approaching you may be tempted to buy a gift card for a friend or loved one.  However, you need to choose carefully when deciding from where to purchase.  This month Circuit City filed for bankruptcy and can decline to accept their own gift cards at any moment.

Back in February 19, 2008, gift card holders for Sharper Image got a wake up call. The company filed for bankruptcy and temporarily suspended acceptance of gift cards and merchandise certificates. Weeks later, they obtained court approval to resume taking cards and certificates under certain conditions. Then on May 30, all that ended when the retailer announced that it was closing its stores and selling its assets to a joint venture firm. Sharper Image wrote a press release and recommended that card and certificate holders file a proof of claim form with the bankruptcy court. Are they insane!?!

With the current economic crisis, many retailers are filing for bankruptcy or even worse, just going out of business. If you buy a gift certificate from one of these retailers and they close up after the holidays, those cards could be obsolete. There are even rumors that stores planning to close after Christmas are still selling the cards through the holidays even though the cards will be worthless January 1. Currently there is no law preventing them from doing this.

Keep in mind that just because a company is filing for bankruptcy doesn’t mean that your gift cards will be valueless. Though Federal Laws allow companies to stop taking gift cards after they file for Chapter 11 bankruptcy protection, not all businesses do so. Some companies may continue to accept cards while they reorganize, while others may temporarily suspend acceptance until a later date. However, better safe than sorry.

We recommend you buy gift cards from companies that are in a good position to weather this economic storm. Wal-Mart, Target and Amazon.com, aren’t going anywhere, and your loved ones could buy almost anything from those stores. Another option is the American Express gift card, which is accepted wherever American Express cards are though some restrictions do apply.

And, if you currently hold a gift card, use it! I’m on my way to Circuit City right now before it’s too late.