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What to do if your retail credit card issuer goes bankrupt

Keep paying down the balance, experts say

By Brian O'Connell

Henry Ford once said that "failure is the opportunity to begin again, more intelligently."

That could well be the path for millions of credit cardholders who see the retailers behind some of their cards go into bankruptcy, or worse, go under. So it's back to square one for anyone left holding the store's credit card.

Chain store failures are a growing concern for cardholders amid a retail environment where big, brand-name stores are teetering like a college freshman at his first keg party.

According to retail industry guru Howard Davidowitz of Davidowitz & Associates, about 220,000 stores will close in the United States in 2009, as more Americans save and spend less in a consumer environment where money and credit are both tight. Davidowitz cites shopping mall mainstays like Nordstroms, Neiman Marcus, Tiffany's, Zales, Saks, J.C. Penney and Sears, as retailers who will be shuttering stores in big numbers in 2009.

Already, Circuit City, Sharper Image and Linens & Things have

gone belly up, leaving big box parking lots emptier than the "find a friend" link on ex- Illinois Gov. Rod Blagojevich's Facebook profile.

So what's a cardholder to do? First, know the landscape. According to Babs Ryan, a Chicago-based global consumer trends analyst and the ex-director of card services for General Electric, most store credit card portfolios are not owned by the retail stores. "They are owned by private label companies such as GE or Citibank," she says.

Ryan has some personal experience in working card issues with bankrupt retailers. "I worked for GE when Montgomery Ward closed and GE managed the card business," she adds. "Almost always, the outstanding credit card balance is still outstanding, and the cardholders will still get bills. As a cardholder, you acquired the goods on the credit cards. and made an obligation to pay over time with interest, and you still have that obligation."

Many people do stop paying, believing that if the store is bankrupt that they can keep the goods without ever paying for them.

Category: Credit

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