Get in line in bankruptcy court if you pay by check/cash
Posted by Frugal on April 1st, 2008
There are an increase in bankruptcy filing by corporations. It’s very important for every consumer to protect themselves in every possible way. The most important thing is don’t pay cash. Cash given to corporations is only good as long as the corporation exists.
If you buy gift cards, be sure to use them as quickly as possible. Gift cards are like loans given to the companies. The only commitment from the companies is that they will honor their gift cards before they go bankrupt. An example is the recent Sharper Image bankruptcy. They stopped honoring the gift cards.
If you pay by cash/check, it’s the same story. Aloha airline going bankrupt will not be honoring their sold tickets if they were paid by cash or check.
I know it sounds outrageous. But that’s just the way it works. Once a corporation files bankruptcy, the shareholders or the owners no longer have the control over the company. Rather, the corporation is “owned” by the bondholders, who will need to divide up the remaining assets in the bankruptcy court. If you have any cash left in the company’s control, you are just another lien holder.
To avoid these heartache, the only way is to pay by credit card. A payment by credit card is only a commitment to pay the amount of cash through credit card company. Since credit card companies don’t give these money to the companies immediately, but only extend credits to the company, there is no money exchanged (yet). Therefore, it’s a much safer way to pay. And that is the reason that credit card company has the bargaining power to allow you to dispute your payment when the service/products are not received.
With global liquidity drying, I expect that both big and small companies are going to go through a rough time for quite a while (years, I mean). Those that don’t have enough cash on hand for daily operation will need to file bankruptcy. And you don’t want to become a victim of such happening.
Best luck shopping.
Frugal at Liar’s Loans Coming Back to Bite
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April 1st, 2008 at 7:54 am
This happened to people who had flights on Independence Airways when it went out of business (hub was Washington Dulles). However, the merchant bank clears flight transactions with the credit card company way in advance of your flight. So a class action law suit starts to get everyone’s money back. I think people got most of their money about six months later.
April 2nd, 2008 at 5:15 am
Great post -
Where do customers fall in the hierarchy of claimants? I assume relatively high, probably not ahead of employees or suppliers and maybe not the government, but certainly ahaed of bond holders and equity holders, right?
I guess the credit card companies will provide the refund and then file their own claim in bankruptcy court. The problem with the class action is the legal fees. But, honestly, who purchases airline tickets with cash or check?
April 6th, 2008 at 5:22 pm
It really is sad what companies can get away with. 99% of my purchases are made by credit card because not only do I feel more secured, I feel that I can get more for my money with the rewards