In a move not terribly shocking after last week’s 100+ store closings, Circuit City has filed for Chapter 11 Bankruptcy.

Circuit City started life in 1949 as the Wards Company, founded by Samuel S. Wurtzel. It changed it’s name officially to Circuit City in 1984 and went nationwide with a chain of warehouse-styled stores, selling electronic goodies like computers, televisions, audio/video equipment, and later, large appliances.

In 1999, Circuit City created, and eventually spun off CarMAX as a separate company, along with other subsidiaries (First North American National Bank, created to operate it’s ‘Circuit City’ credit card. First North was later sold to Chase)

Bad Business

Circuit City also tried to introduce a new standard for DVD rentals with the Divx (Digital Video Express) disk. This disk, similar in capacity to regular DVD’s, required a unique player, and a phone line, in order to ‘register’ the user with the main Divx system. Otherwise the Divx disks couldn’t be viewed in any system.

As would be expected, after pushing the technology hard, the standard failed. This left many a Circuit City customer with an unusable system, and a number of ‘dead’ disks.

With the death of Divx, Circuit City suffered an proxy. $114 million dollar loss.

Bad Gift Cards

Now with what might be the final chapter of the Circuit City story playing out, even more customers might be left holding ‘worthless’ merchandise, in the form of unredeemable gift cards.

With a normal Chapter 11 bankruptcy, businesses are usually allowed to continue in business while they re-organize and attempt to become profitable. This isn’t always the case, and there’s more than a little speculation that Circuit City will close all it’s stores before the holidays.

Should that happen, getting your money back from a gift card may be all but impossible. Gift cards, once you strip away all the pretty packaging, the sales glitz, and everything else are nothing more than unsecured loans made to the company. That means, when the courts distribute Circuit City’s assets to it’s creditors, customers that have gift cards are near the end of the payout. If the money runs out before they get to redeeming the cards, they become worthless and the customer loses their money.

What to Do?

Unfortunately there’s not much TO do in this situation. Like the closing of Sharper Image a while back, this Circuit City bankruptcy might just cause your gift cards to be worthless. The best thing to do if you have a gift card is to redeem it as soon as possible. If there’s a Circuit City near you that hasn’t closed yet, you can attempt to use it up and possibly get some of those Christmas presents early.

Otherwise, it’s just another casualty of the bad economy.