Lawyers.com Blog

As a consumer, you have rights, and power. Specifically, the power of the almighty dollar. However, what happens when the company has your dollar, and goes out of business before giving you what you paid for?

Legally speaking, those who held tickets on the bankrupt airlines or gift cards to Sharper Image may have a claim for the money they spent, but recovering even a dime of that money is probably going to take more work than it’s worth. Say you take the time and effort and actually submit your claim to be added to all the others in the bankruptcy proceeding. Even if your claim is acknowledged, you may see little to no money for it. A large part of the problem is that a company goes bankrupt precisely because they don’t have the money to pay everyone they owe. If they did, they’d still be in business. During the bankruptcy process, anything that the company owns (land, buildings, equipment, etc.) can be sold to raise funds to pay some of what is owed. It is very unlikely, though, that this will provide enough money to cover every debt.

If you feel you have a claim and have the stomach to ride out the process, you may still want to go for it. This is especially true for the airline tickets if you paid by cash or some form of check. If you paid by credit card, there is another option available to you which I will discuss in my next posting.

When gift cards suddenly become worth less than the plastic they’re printed on, the consumer is often out of luck. For those of you holding Sharper Image gift cards, however, there is some good news. The Sharper Image has issued an advisory that gift cards purchased before February 19, 2008, can be redeemed online. But there is a catch: you have to spend twice the amount of the gift card. As they explain it, if you have a gift card for $25, you must spend $50 on merchandise in order to get the $25 credit. Customers who don’t wish to do that can opt to become a creditor in the bankruptcy proceeding or hold onto their gift cards in the hope that they might be honored in the future. Neither option guarantees the card holder will receive anything.

So how can you protect yourself ahead of time? Here are some tips:

• Do your homework. The Federal Trade Commission’s Bureau of Consumer Protection exists to protect consumers from fraudulent, deceptive, or unfair business practices and to educate them about their rights and possible dangers. Checking with them and the Better Business Bureau is a great way to determine the legitimacy of offers or companies.
• Hedge your bets. Worry over losing money spent on gift cards is driving some consumers to use services such as those offered at www.leveragecard.com – a place where you can buy and then trade gift cards.
• Pay by credit card. Many credit cards offer extra protection after you’ve made your purchase. I’ll discuss one of these options in my next posting.

As far as airlines go, it still feels a little bit like playing a game of Russian roulette. Pick your airline, buy your ticket and pray that everything goes according to plan. Or just ask a flight attendant. Two days before ATA quit flying, one of the flight attendants on my friend’s flight was making dark predictions about the future of her airline. Next time my family and his will take such warnings very, very seriously.

Next time: Flying the Empty Skies IV: To Charge…and to Charge Back

Related Links:

• To view the Sharper Image announcement about online use of gift cards click here.
• For information on filing a claim against Sharper Image, click here.
• Bureau of Consumer Protection
• The Better Business Bureau

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It seems like bankruptcy is a word we’re hearing a lot these days.
Most people probably know someone who has gone or is about to go
bankrupt. When it happens to a family it’s difficult and often painful.
Generally speaking, though, the drama of the event is contained within the
family. When a business goes bankrupt, however, the trauma is shared by owners,
workers, and customers alike. We’ve all seen the signs. Real estate developers,
furniture stores, huge chains, and mom and pop stores go bankrupt. Recently the
trend has been for airlines to go bankrupt. When a business goes bankrupt, how
does it affect the consumer? The answer is that it affects the consumer in many
ways, not all of them readily visible.

My husband and I have been looking at buying a house, our first. We found the
perfect townhouse in a beautiful, friendly community. Only two problems. First,
the developer had gone bankrupt. Normally that might not have been a problem
were it not for the second problem. The homeowner’s association was suing the
developer for back association dues and some defects in the exterior paint,
driveways, and roofs. We still felt we were okay. After all, the particular
unit we wanted to buy had none of the roof or driveway problems and we were
more than willing to repaint the outside ourselves. However, no bank was
willing to loan on the property because it was currently involved in the
homeowner’s association lawsuit. So, you have an owner stuck with a house he
can’t sell, a hopeful young couple wanting a house the bank won’t let them buy,
and a long-suffering realtor who is not going to get any money for dozens and
dozens of hours of hard work.

Of course this starts a trickle-down affect that’s bad for the whole community.
Unable to buy the home we want, we will not be going to the furniture store,
the appliance store, or even Costco where the really big flat panel television
screen has been calling my name. When no money changes hands, the economy comes
to a screeching halt.

Aloha Airlines, ATA, and Skybus have all declared bankruptcy and ceased their
passenger flights. This resulted in thousands of people being stranded for one
or more days when they didn’t necessarily have the time, or the money, to be
stranded. People who paid for their airline tickets with these companies by
cash or check are worst off. They can name themselves as a creditor in the
bankruptcy proceeding, but when the whole mess is finally over they’re likely
to get only a fraction of their costs back. Those who paid by credit card are
far luckier; they can call their credit card company and get a charge back
(something I’ll talk about in detail in a later post). However, that doesn’t
help them buy a new ticket on a new airline today. If they don’t have the
available cash or credit to do so, they will remain stuck on the ground. If you
are at home this means you’ll be spending your vacation in your own backyard
(you know, the place you were trying to escape). If you are on vacation, or
visiting family, and can’t afford to instantly buy a new ticket then you’re
stuck with hotel and restaurant bills which you probably don’t have the cash
for either. Worse yet, once you’ve used your vacation time, all that’s left is
sick time standing between you and unpaid time off.

Ticket-holding customers are obviously not the only ones affected by the
bankruptcies of these airlines and the sudden cessation of flights. Passengers
on remaining airlines have experienced delays, overcrowding, and difficulties
in scheduling flights when they need them. Prices on the remaining airlines
have gone up due to consumer demand and to cover the costs of helping out
stranded passengers. Vacations had to be juggled, affecting family, friends,
and coworkers. Tired, frustrated people presented more of a danger on the
roadways. More devastating than all of this, employees of these airlines
suddenly found themselves out of work. That puts financial pressure on many
families and increases competition in the job market. There are fewer jobs to
be had. Some might have to move in order to find a new job. Others could face
the daunting task of starting over in a whole new industry.

For one frustrated passenger, our friend whose visit was unexpectedly extended
due to the cancellation of his ATA flight, the bankruptcy of that business had
a terrible impact on his family, his studies, and his pocket book. To make him
feel better we told him all about the house we couldn’t buy because someone who
didn’t own it had gone bankrupt. We thought about driving by and showing it to
him, but there had already been enough anger and frustration for one day.

Next time: Flying the Empty Skies III: I’m a Consumer, Don’t I Have Rights?

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Related Links:

• More information about corporate bankruptcy.
• Aloha Airlines - get answers to your questions about tickets already purchased, miles, and money owed.
• ATA - get answers to your questions about tickets already purchased, miles, and money owed.
• Skybus – Skybus ceased operation.
• Price trip insurance.
• Champion Air – also declared bankruptcy and cessation of operations, but with ample warning; read their press release.

A friend from college came out last week to visit my husband and me. We picked him up Monday from the airport and told him how relieved we were he wasn’t flying Aloha Airlines since they had declared the day before that Monday was the last time they would fly. He was relieved too. Early Thursday we had to wake him up with the news that his flight was canceled due to the fact that the airline, ATA, had declared bankruptcy the night before and closed up shop.

Thus began the nightmare of trying to find him a way home. It took all day. The good news was he was able to get a flight home even though he would be arriving at a different airport than the one he left from. The bad news was that the first available flight was the following Wednesday. Unfortunately his wife had to take valuable time off of work that they couldn’t afford to take care of the children for the days he was stuck. The only thing that kept the crisis from becoming a full-blown emergency was that he had enough of his prescription medication with him.

In observing this entire fiasco, several things have become apparent to me. I’m going to be posting on three topics of interest: business and bankruptcy, consumer rights, and credit card charge backs. Sometimes what you don’t know can make your life hard.

Here is some advice for those traveling in the near future:

• When traveling, make sure you have a back-up plan. A back-up plan includes enough money to buy a new airline ticket home, spend a couple extra nights at a hotel, keep a rental car for a couple more days and pay for more groceries or restaurant meals.

• Make sure that those who should know are aware of your back-up plan. This means that those who watch your house, water your plants, take care of your pets, and pick up your mail and newspapers know that they might be required to continue these functions for a couple extra days in the event of an emergency. Leave them with a way to get hold of you even if you’re not staying at the same hotel you started your trip on. At the very least you need a way to get hold of them in a timely fashion. Even an unexpected delay of a few hours could mean the difference between a happy homecoming and the stress of discovering that Rover went too long without a walk. Make sure you communicate well with whoever you plan to pick you up at the airport.
• Take with you numbers you will need in case you are stranded. Make sure to include numbers for work, school, and any people you may have scheduled appointments or meetings with. Remember, this goes double for those taking care of your things and scheduled to pick you up.

• Bring enough prescription medication to last you a few extra days if need be. Had my friend not been prepared, he could have run into serious difficulty trying to get a prescription from his doctor to a completely different pharmacy than the one at home in a timely manner.
• Seriously consider getting trip insurance. You get car insurance, health insurance, home and renters insurance, why not trip insurance? For just a few dollars you can protect your investment. That way when the unexpected happens, you aren’t out all that money you spent on the perfect vacation.

Life is unpredictable and the people who are aware of that can better handle emergencies when they arise. Yes, you have an airline ticket, which is a contract between you and a carrier for them to take you from one destination to another. However, if your airline has gone bankrupt AND ceased its flights, that ticket is worthless. You can try to get your money back, and I’ll talk about that later, but that ticket isn’t going to take you anywhere unless some other airline has offered to step in and honor it. (This is what Hawaiian did for the first couple of days after Aloha quit flying.) A ticket is only a guarantee that you have a seat on a particular flight. If that airline goes out of business, or that particular plane is grounded for emergency maintenance you will need to find another way home.

Next time: Flying the Empty Skies Part II: What it Means to Me When a Business Goes Bankrupt

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Related Links:

• Aloha Airlines - get answers to your questions about tickets already purchased, miles, and money owed.
• ATA - get answers to your questions about tickets already purchased.
• More information about corporate bankruptcy.