When your money's trapped in limbo

By Liz Pulliam Weston

Aaron Wayne paid for an extended warranty that included oil changes when he bought his F-150 truck from a Sacramento, Calif.-area dealership. When that company went out of business, he took his vehicle to another dealer for service but wound up with a bill he hadn't expected.

Thinking it was a mistake, he told the dealership's cashier that the service department must have missed the warranty agreement he'd left on the dashboard. No, they didn't miss it, he was told.

"The cashier said, 'You're not the first customer to have this problem,'" Wayne remembered. "'That warranty you provided is null and void.'"

Wayne is unfortunately part of a growing trend. As the number of business bankruptcies spike, more people will discover that their hard-earned cash is trapped in limbo -- inaccessible to them and perhaps gone forever.

For example:

• Consumers lost as much as $100 million in now-unusable gift cards when Sharper Image and Linens 'n Things stores went out of business, according to research firm TowerGroup. The firm predicted an additional $75 million in cards purchased over the holidays will be lost in coming months as more chains go bankrupt; rebates are at risk as well.

• Some workers' 401(k) contributions could be lost if their strapped employers delay or divert the money before sliding into bankruptcy.

• Bank failures and mergers could lead to more safe-deposit boxes being drilled open and the contents auctioned off.

• Anyone who has purchased a car in recent months or who is in the market for a new car could be hurt by a rising tide of dealership bankruptcies. And it's not just dealership warranties that could be voided: Some stranded customers have had their credit trashed or their vehicles suddenly repossessed.

You need to be alert as never before if you don't want to be victimized by dying businesses. Here's what you need to know about some of the biggest risks and how you can protect yourself.

Disappearing gift cards and rebates

Before the holidays, I warned you in "Gift cards: A bad idea gets even worse" that a rising tide of business failures made purchasing gift cards risky, because there was no guarantee the plastic would be honored by bankrupt companies. Since then, several more retailers have announced they're going out of business, including Circuit City, Goody's and KB Toys.

In addition, the bankruptcy filing of a rebate-processing company has left many consumers in limbo. CPG Promotions processed rebates for a number of big companies, including Costco, Canon, Bed Bath & Beyond, Home Depot and Samsung, among many, many others.

Customers who received rebate checks around the time of CPG's Nov. 14 bankruptcy filing typically found that the checks bounced.

If you got such a rubber check, or you're owed a rebate that hasn't arrived, check out this Slickdeals.net post for what to do next. Some manufacturers have reissued rebate checks or made alternate arrangements for rebates to be honored.

In the future, be wary of making a purchase solely because of a rebate offer. As Melinda Fulmer wrote for MSN Money in "Don't get ripped off by a rebate 'deal,'" some companies made cashing in on rebates difficult even before the recession hit. If you decide to bite anyway:

• Submit your rebate claim as soon as possible after your purchase.

• Make copies of all the paperwork.

• Follow up with the rebate processor six weeks later if your check hasn't arrived.

• Contact the manufacturer if the rebate processor fails to honor your claim.

Meanwhile, if you got a gift card for the holidays, use it now. As the recession drags on, retailers will continue to topple, taking the value of your gift cards with them.

Keep an eye on your 401(k) statements

A reader who called himself "Mr. B." worried that his 401(k) contributions weren't being properly credited to his retirement account.

"I'm afraid my bi-weekly deducted amount of $70 (140 per month) is not being sent in regularly by my employer," Mr. B. wrote. "I have not received a statement from my employer in almost a year. . . . It seems like months of my money is gaining interest in my company's account . . . instead of my 401(k)."

Mr. B. isn't just being paranoid. As small businesses face tough times and tight credit, some will resort to "borrowing" or even stealing employee retirement contributions to make ends meet.

"Historically, the place where there's been a problem is with small companies approaching bankruptcy," said David Wray, the president of the Profit Sharing/401(k) Council of America. "You need to watch what's happening with your contributions and especially be aware if you find your company is in real financial trouble."

Your risk is minimal if you work for a large company that electronically credits your 401(k) contributions within hours of cutting your paycheck, as most big companies do.

Once your money reaches the accounts of the third-party administrator that runs your retirement plan, it's safe from creditors. Retirement assets are held separately from a company's other assets and are protected in case the company or plan administrator files for bankruptcy, Wray said.

"Any money actually in the plan," Wray said, "is absolutely protected."

If your employer forwards your contributions manually, however -- by writing checks instead of making instant electronic payments, for example -- your risk rises. Companies have been known to delay or divert retirement contributions to pay other bills. That's illegal, of course, but any contributions that haven't been credited to your account still could be lost forever in a bankruptcy filing.

What to do? If you can get online access to your 401(k) account, you should be able to see exactly when your contributions are credited. If there's a delay of more than two weeks between the time your contribution is deducted from your paycheck and the time the money shows up in your retirement fund, call the nearest field office for the U.S. Department of Labor's Employment Benefits Security Administration to lodge a complaint. (To get a faster response, get your co-workers to call as well.)

"Timely deposits is a very important issue for the DOL," Wray said. "If someone is holding up the deposits, (the department) will definitely intervene."

If, like Mr. B, you're not even getting statements, you need to first contact the plan administrator to make sure your documents aren't being sent to the wrong address. Your employer should be able to provide you with that contact information.

Once you contact the plan administrator in writing, let it know you expect to receive your most recent statement within two weeks. If you don't get a response in that time, contact the DOL, Wray suggested.

Continued: Safe-deposit boxes that aren't

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