KB Toys latest to file for bankruptcy

If you have gift cards or certificates, merchandise to return, or any other business at KB Toys, now would be a good time to take care of it.

The retailer filed for bankruptcy protection with the United States Bankruptcy Court for the District of Delaware today and said it plans to liquidate all of its stores. It was not immediately clear whether KB Toys would continue to make good on gift cards or other outstanding consumer obligations.

Our check of three KB Toys stores Thursday evening (in Yonkers, N.Y.; Sacramento, Calif.; and Fort Worth, Texas) found that they were still accepting gift cards and returns. However, when we tried to use a gift card to make a purchase at the company’s Web site, a notice said that the site was unable to accept KB Toys.com gift cards due to “system issues” and advised visitors to check back in 24 hours. The site was no longer selling gift cards.

During other recent bankruptcies, some retailers have continued to honor gift cards, including Linens ‘n Things, which is liquidating, and Circuit City, which is trying to reorganize and remain in business. Other retailers, such as Sharper Image, have not. If gift cards and other obligations are not honored, consumers may be forced to file a claim in bankruptcy court, where they will likely end up with only part of the amount they’re owed.

In its bankruptcy filing, KB Toys said that, as of Nov. 29, it had assets with a book value $242 million and $362 million in liabilities. The Pittsfield, Mass.-based chain operates in 41 states, Puerto Rico, and Guam. It has 277 mall-based stores, 40 KB Toy Works stores, and 114 KB Toy Outlet stores.

In its court fling, it blamed the bankruptcy on “a sudden and sharp decline in consumer sales.” — Anthony Giorgianni