by Jennifer Nicole Dienst | June 01, 2008

In February, when the popular San Francisco-based consumer-goods company The Sharper Image filed for Chapter 11, planners who used the firm’s gift cards as rewards, as well as the recipients of the cards, were left in the lurch.

Initially, the company suspended any and all redemption of its cards. At press time, it had resumed redemption on two conditions: Recipients must redeem the card in full in one transaction, and they must purchase an item that costs at least double the value of the gift card.

What can planners or recipients recoup if gift card retailers go bust? According to George B. Delta, Esq., a Vienna, Va.-based attorney and counsel to the Incentive Federation Inc., not much, since current bankruptcy law states that gift cards do not have to be honored, even if the issuing companies would like to do so. “A gift card is an IOU, basically,” Delta said. “It’s not secured by anything.”

But there are a few ways planners can protect the value of their gifts. Leverage Inc. (, a new Irvine, Calif.-based company, lets users swap out gift cards, including Sharper Image’s, for another of equal value from more than 200 companies, for free.

Leverage, which lets users organize, buy and earn interest on gift cards, also has launched a bankruptcy insurance program for gift cards purchased from its website. “The policy states that the full value of a card can be exchanged for any card we sell,” said Leverage CEO Mark Edward Roberts.

Furthermore, Leverage sends out alerts to members when rumors of a possible bankruptcy start swirling.