When you buy a $200 gift card, the store does not record $200 of revenue. It records a $200 liability. The money sits on the balance sheet as something the company owes you, interest free, for as long as the card stays in a drawer. Every rule governing what happens to unused gift cards follows from that one accounting line, which is also why your protections hold up well right until the moment the retailer stops being able to pay.
Industry estimates of unredeemed gift card balances in the United States cluster around $23 billion, and the number moves depending on who is counting and what they count. Take the middle of the range and hold it for three months at a 4% short-term rate and you get roughly $230 million a year of financing that retailers never had to borrow or pay interest on. That is the business model working exactly as designed.
What happens to unused gift cards starts with whose money it is
The instinct most people have is that a gift card is stored money, like cash in a slightly inconvenient wallet. Legally it is closer to a loan. You handed a company money in exchange for a promise to deliver goods later, and you did it without collateral, without interest, and without any ability to call the loan back. In the vocabulary of finance you are an unsecured creditor of a retailer, which is a position you would probably never take on purpose.
Everything follows from that. A creditor gets rules about how long the promise stays good, rules about what happens if the promise is abandoned, and rules about where they stand in line if the borrower goes under. Those are three separate legal systems, and they protect you to three very different degrees. It is worth noticing what you do not get, too. Money in a bank account is insured by the FDIC precisely because a deposit is a loan to a bank and Congress decided that particular loan needed a federal backstop, a process we traced in what happens when a bank fails. No such backstop exists for the money you lend a clothing store.
The five-year rule is a floor, not a guarantee
Federal law caps how fast a retailer can take your money back. The Credit CARD Act of 2009 amended the Electronic Fund Transfer Act to require that gift cards remain valid for at least five years from the date of purchase or the date funds were last loaded, and it restricted inactivity and service fees until a card has gone unused for at least a year. Then it allows one fee per month.
Notice what that does and does not do. It does not outlaw expiration. It postpones it. After five years, the federal floor drops away and state law takes over, and the state rules diverge sharply. California does not permit most gift cards to expire at all. Other states allow expiration once the federal window closes. Reading a national article that says “gift cards cannot expire” and concluding your card is safe forever is how people lose balances they thought were permanent.
Escheat is the state stepping in on your behalf, imperfectly
If a balance sits untouched long enough, many states treat it as abandoned property and require the retailer to hand it over to the state, where you can claim it later. Dormancy periods commonly run somewhere between two and seven years. States also disagree about how much of the card counts as abandoned. New York treats the full value of an expired card as abandoned property. North Carolina treats 60% of it that way. Some states exempt gift cards from unclaimed property law entirely, which sounds consumer friendly and is actually the opposite, because it means the retailer simply keeps the money.
The escheat system works, in the sense that the money is recoverable. It just requires you to know it happened, know which state holds it, and go looking. If you want the mechanics of that process, we walked through it in how unclaimed property works.
Bankruptcy courts keep ruling that gift cards are not deposits
Search for advice about gift cards at a failing retailer and you will find the same reassuring line everywhere, and it is the thing most coverage gets wrong. Bankruptcy law gives consumers a priority claim for deposits on goods that were never delivered, currently capped at $3,800 for cases filed on or after April 1, 2025, per the Federal Register notice adjusting bankruptcy dollar amounts. Since almost no gift card approaches $3,800, the implication is that your balance is fully protected.
Courts have not agreed. In a Delaware bankruptcy case involving the retailer City Sports, decided in 2016, the court held that gift card purchases are not “deposits” under that section of the code at all. The reasoning turned on timing. The statute contemplates money put down in advance for goods to be delivered later. When you buy a gift card, you pay and receive the card in the same instant, so the court found no gap between payment and delivery and therefore no deposit. The claims were reclassified as general unsecured, the same bucket as the landlords and the freight vendors.
The dollar consequence is severe. Say you hold a $200 card at a liquidating retailer. With priority status, the cap is $3,800 and your card is far below it, so you would recover the full $200. As a general unsecured claim in a liquidation that pays five cents on the dollar, that same card returns $10. The court ruling costs you $190 of a $200 balance, a 95% haircut, and nothing about the card itself changed.
Chapter 11 is a permission slip, and permissions get revoked
The City Sports outcome is not what usually happens, because most cases never get that far. Retailers entering Chapter 11 typically file a motion in the first days asking the court for authority to keep honoring gift cards, and judges usually sign it, on the theory that a company hoping to reorganize cannot afford to turn away the customers it needs to survive. That authority is discretionary, and it is written with an end date.
Saks Global filed for Chapter 11 protection on January 14, 2026, and the court allowed gift cards to keep working. But the store closing procedures approved in that case required closing locations to accept gift cards only for the first 15 days after their liquidation sales began. Francesca’s, which filed in February 2026, set a hard date and stopped taking gift cards in stores after February 26. Neither company did anything unusual. Both simply followed the standard pattern, which is that gift card acceptance is one of the first things to go once the decision shifts from reorganizing to winding down.
The practical rule that falls out of this is unglamorous. A gift card at a retailer in financial trouble is worth its face value today and an unknown fraction of that in six weeks. There is no upside to holding it and waiting for a better sale.
The new tampering laws show where the risk moved
Something else has been happening to gift cards, and the state legislatures have noticed. Criminals lift cards from store racks, open the packaging carefully, record the card number and PIN, reseal it, and put it back. When a customer buys and activates it, the funds are drained before the recipient ever gets to a register.
New Jersey now requires retailers to display tampering warnings, seal cards so they cannot be opened without visible damage, and conceal activation codes before sale. That law took effect October 1, 2025, with enforcement beginning February 1, 2026. Maryland’s version arrives in October 2026 and adds criminal penalties for tampering. New York’s Gift Certificate Scam Prevention Act requires staff training on spotting compromised cards. Stateline reported in July 2026 that this kind of legislation has been spreading quickly across statehouses.
What that wave of laws tells you is where the vulnerability actually sits. The five-year rule and escheat statutes protect a balance that exists. They do nothing for a card that was empty before you handed it over, and nothing for a claim in a liquidation. The real risk in a gift card has never been the expiration date printed on the back.
What to do with the ones in your drawer
The mechanism suggests the behavior. Treat a gift card like a short-term loan you would like repaid promptly, because that is what it is. Spend it early, ideally within the first few months, when the retailer’s solvency is a known quantity rather than a guess. Check the balance when you receive it, particularly on a card bought off an open rack. Keep the receipt, since it establishes the purchase date that the five-year clock runs from. And if you hear that a retailer has filed, do not wait for the going-out-of-business markdowns. The discount is real and the card may not be.
What happens to unused gift cards is not really a story about expiration dates. It is a story about being an unsecured creditor of a company you never agreed to lend to. Your protections are strongest against sloppiness and weakest against insolvency, which is precisely backwards from what you would want.