- Sears has long been a top seller of home appliances in the US, and with those appliances, the retailer has sold countless warranties.
- The company is now preparing for a possible bankruptcy filing, leaving many customers wondering what will happen to their warranties and Shop Your Way loyalty points.
- There’s a possibility Sears warranties and loyalty points could be dissolved, according to bankruptcy lawyer Corali Lopez-Castro.
- “We are a leader in the service contracts industry and proudly stand behind our product,” a Sears spokesman told Business Insider last year.
Albert Barrera of Odessa, Texas, walked into a Sears store last year with a pressing question for the manager: “If Sears closes, who will service my refrigerator?”
Barrera had bought a Kenmore refrigerator for $US529 several months earlier, and along with it, he purchased a three-year service warranty that cost $US229 – almost half as much as the refrigerator.
But he later started to worry that Sears could go out of business and that his warranty would be canceled as a result. He says the store manager failed to alleviate his fears.
“He had no answer for me and assured me he had not heard of them shutting down at all, which I highly doubt,” Barrera told Business Insider.
Now that Sears is preparing for a possible bankruptcy filing, many other customers may be having the same fears as Barrera.
Sears has long been a top seller of home appliances in the US, and with those appliances, the retailer has sold countless warranties.
But within the last decade, Sears’ sales have plunged and now speculation is growing that the company could go bankrupt.
That has left many customers like Barrera wondering: what will happen to my Sears warranty?
Sears says it will honour its warranties.
“We are a leader in the service contracts industry and proudly stand behind our product,” a Sears spokesman told Business Insider last year. “Sears, as well as any other company that legally sells service contracts, is required to meet regulatory requirements designed to provide adequate resources to fulfil service contracts into the future. We will fulfil our commitment to our customers and members.”
But according to bankruptcy lawyer Corali Lopez-Castro, there’s a possibility warranties would be dissolved in the event of a Sears bankruptcy.
“The warranties are going to be a huge issue,” Lopez-Castro, a partner at the Florida-based law firm Kozyak Tropin & Throckmorton, told Business Insider. “There’s a real risk that they will not be honored.”
She said gift cards and rewards points earned through Sears’ Shop Your Way loyalty program could also be erased.
“I would advise customers to redeem their points now,” she said.
If Sears filed for Chapter 11 bankruptcy protection, the fate of its warranties and rewards points would be decided in court.
Sears would have a lot of creditors to pay – including its suppliers – before customers and their outstanding warranties and loyalty points would be considered, she said.
Filing for bankruptcy protection allows companies to reorganise by restructuring their debts or selling assets to try and stay in operation.
Historically, shoppers often fail to recoup the money racked up through loyalty points and left outstanding on unused gift cards during retail bankruptcies.
When the sporting goods retailer Sports Authority filed for bankruptcy in 2016, the company petitioned a judge to allow it to honour its gift cards – which had an outstanding balance of nearly $US93 million – and loyalty points throughout the restructuring process.
Eventually, the company went out of business and the value of unused gift cards was lost.
Lopez-Castro believes a similar fate awaits Sears if it files for bankruptcy because the underlying retail business is ailing.
“It’s not just about deleveraging their balance sheet,” she said. “You have to actually deal with the operations, which is a much bigger problem.”
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