What happens to restaurant gift cards when you close is a question most owners do not think about until it is too late. The answer involves state law, federal consumer protection rules, and real financial liability that can follow you after the doors close.
The short answer: outstanding gift cards are a debt
When a customer buys a gift card, they are extending you a loan. They gave you cash in exchange for a promise to deliver food or service later. When you close without honoring that promise, you have not delivered on the contract. That creates liability.
The size of that liability depends on how many gift cards you have sold, how many remain unredeemed, and which state your restaurant operates in.
State escheatment laws
Every state has an unclaimed property law -- sometimes called an escheatment law -- that governs what happens to unredeemed gift card balances. The rules vary significantly by state.
In most states, unredeemed gift card balances must be reported and remitted to the state after a dormancy period, typically three to five years. When you close your restaurant, the clock does not reset. If you have outstanding gift card balances that have been dormant for the required period, you may owe those funds to the state.
California, New York, and New Jersey have some of the strictest escheatment rules in the country. Texas and Florida have more lenient treatment for small businesses. The National Conference of State Legislatures maintains a state-by-state summary of unclaimed property laws.
What the FTC says
The Federal Trade Commission's Gift Card Rule, which took effect in 2010, prohibits gift card issuers from charging inactivity fees for the first 12 months after a card is purchased. It also requires that gift cards remain valid for at least five years from the date of purchase. These rules apply to restaurant gift cards.
When you close, the FTC rules do not give you permission to simply void outstanding balances. Customers who purchased gift cards within the past five years have a legal claim against the value on those cards.
Your practical options when closing
Option 1: Honor cards during the wind-down period. If you are doing a planned closure with a wind-down period of two to four weeks, the simplest approach is to accept gift cards during that period and let customers redeem what they have. Announce the closure publicly and give customers a clear deadline.
Option 2: Offer refunds. If your closure is abrupt or your wind-down period is short, contact customers directly (if you have their email addresses from a loyalty program or registration) and offer cash refunds for unredeemed balances. This is the cleanest resolution and eliminates the liability.
Option 3: Transfer to another location. If you are closing one location but another location of the same concept remains open, gift cards can often be honored at the remaining location. This requires coordination with the other operator and clear communication to customers.
Option 4: Remit to the state. If you cannot honor cards and cannot locate customers, consult with your accountant or attorney about remitting the outstanding balances to your state's unclaimed property program. This satisfies the legal obligation but does not help the customers who are owed value.
What happens if you do nothing
Ignoring outstanding gift card balances when you close is a mistake. Customers who cannot redeem gift cards after a closure have legal remedies, including small claims court. In states with strong consumer protection laws, the attorney general's office can pursue claims on behalf of consumers. The dollar amounts involved are often small individually, but the reputational and legal exposure is real.
More practically: if you are closing a business that had any public profile, customers will notice. Social media posts from customers who cannot redeem gift cards after a closure are common and damaging. The reputational cost of handling this poorly often exceeds the financial cost of handling it well.
How to estimate your exposure
Pull your gift card sales records from your POS system. Most modern POS systems (Toast, Square, Lightspeed) have a gift card liability report that shows outstanding unredeemed balances. That number is your starting liability. Subtract any balances that are past the state dormancy period for escheatment purposes.
For most independent restaurants, the total outstanding gift card liability is between $500 and $5,000. For restaurants with active gift card programs or significant holiday sales, it can be higher. Either way, it is a manageable number that should be part of your closing cost estimate.
Related guides: What does it actually cost to close a restaurant? | Who pays restaurant debts when it closes? | What happens to employees when a restaurant closes?