Guard against bankrupt businesses

October 13, 2008 4:12:36 PM PDT
One fallout from the failing economy is the number of businesses that have disappeared.That's a problem if you were a customer. But there are ways to protect yourself even if a business goes under.

Maryann Malzone's daughter loves to dance, so when she wrote a check for Julia to take classes at a local dance studio, Maryann considered it money well spent. That is, until the studio went bankrupt after only two classes, leaving Maryann out the $980 she had already paid in tuition.

"Just out of nowhere, they closed the doors," she said. "Out of business. So, did they know it was coming? Probably. Were they still accepting money from people for a service they couldn't provide? Yeah."

The studio where Maryann's daughter danced now sits empty. So does this storefront, one closed by retail giant Linens 'n Things. Several national retailers have filed for bankruptcy protection, including Lillian Vernon and Sharper Image.

Kim Kleman, the editor of Consumer Reports magazine, says there are several ways you can protect yourself in these shaky financial times. First, pay with a credit card - especially when leaving a deposit.

"If the business goes under before you get what you paid for, you can dispute the charge with the card issuer," Kleman said.

You generally have less recourse if you paid with cash, a check, or a debit card. Another precaution to take - spend gift cards as soon as you can, even if there's no reason to suspect the retailer is having financial difficulties.

"If someone you're doing business with goes belly-up, all isn't lost," Kleman said. "If a retailer goes bankrupt, you may still be covered by the manufacturer, and if the manufacturer goes under, you still may have rights at the store where you bought the product or service."

After losing nearly a thousand dollars, Malzone has changed the way she pays.

"I try and put as much as I possibly can on my credit card," she said.

If you're owed money by a company that's gone under, you can file as a priority creditor with the bankruptcy court. You may not recover much during bankruptcy proceedings, but it can be worth a try. Check online for the name of the court where the company filed, or ask your local consumer protection agency for advice.

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