Toys R Us
Toys R Us, pictured January 10, 2006 in Arlington Heights, Illinois, customers who have gift cards should spend the remaining amount before the card becomes completely vulnerable. Getty Images

Toys "R" Us filed for Chapter 11 bankruptcy Tuesday after amassing $5 billion in debt and battling online competitors. Toys "R" Us intends to keep its doors open despite the bankruptcy news, which means they plan to resume all customer programs as normal, like gift cards.

"All Toys "R" Us and Babies "R" Us stores and e-commerce sites are open for business," Nichole Hayes, a media representative for Toys "R" Us, told International Business Times Tuesday. "There are no changes to customer programs including loyalty programs, baby registry [and] gift cards, etc."

Chapter 11 bankruptcy is designated for large corporations to aid in restructuring debts and give the debtor a clean slate. Filing for Chapter 11 bankruptcy typically affects customers that possess gift cards through the store. Customers who may have been waiting to max out their gift cards closer to the holiday season often discover there's no time to wait once a store declares bankruptcy.

The decision to honor gift cards is left in the hands of the court, which includes the length of time the card will be honored. Therefore, it is best for customers to spend gift cards immediately just in case it becomes unusable.

"The problem for gift card holders is that when a company is in this type of financial trouble, outstanding gift cards become just as vulnerable as the business itself," according to GiftCards.com. "The cards are often deemed immediately useless even though stores are open and merchandise remains on the shelves. Some companies ask the courts for permission to continue accepting gift cards during bankruptcy proceedings, some don't and others only ask for permission to accept the cards for a limited period of time."

Customers who neglect to use their gift cards in enough time could discover it becomes useless. In this case, customers can file a claim, which will add them to a list of creditors seeking their money back.

Toys "R" Us joins a growing list of companies that have filed for bankruptcy this year. True Religion, Gymboree and Payless Shoesource all filed for Chapter 11 bankruptcy in 2017. The three retailers continue to accept and sell gift cards in-store and online, but retailers like Wet Seal and American Apparel stopped selling and accepting gift cards in 2017. Toys "R" Us, however, plans to use this change to restructure its business as it begins to prepare for the busy holiday shopping season ahead.

"Today marks the dawn of a new era at Toys "R" Us where we expect that the financial constraints that have held us back will be addressed in a lasting and effective way," Dave Brandon, Toys "R" Us' Chairman and Chief Executive Officer, said in a press release Tuesday. "Together with our investors, our objective is to work with our debtholders and other creditors to restructure the $5 billion of long-term debt on our balance sheet, which will provide us with greater financial flexibility."

"As the holiday season ramps up, our physical and web stores are open for business, and our team members around the world look forward to continuing to put huge smiles on children's faces," Brandon added.

Toys "R" Us also filed several customary motions with the court in conjunction with its bankruptcy to support its standard operations. The company believes this will help to ensure a smoother transition during its financial reconstruction period. Operations supported in this include the regular payment of employees, the continuation of customer programs and payment for its vendors and suppliers.

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