Logan's Gives Away Thousands of Gift Cards, Declares Bankruptcy

Earlier this week, the parent company of troubled Nashville-based restaurant chain Logan's Roadhouse filed for Chapter 11 bankruptcy protection, announced the resignation of CEO Sam Borgese and said it will close 18 underperforming locations.

Faced with stiff competition from other casual dining establishments offering deep discounts, Logan's lost nearly 10 percent of revenue in its most recently reported quarter and has, three times, delayed payment on high-interest debt, leading to Tuesday's announcement that the company will seek bankruptcy protection.

Over the last year, Nashvillians - particularly those that frequent sporting events - have had their pockets lined with "Mystery Reward Cards" of unknown amounts as well as traditional gift cards, which were distributed by the thousands as swag to fans at Tennessee Titans' and Nashville Predators' games.

With the company trying to sort out its debts to creditors with claims in the hundreds of thousands of dollars, what is the fate of the small-potatoes (and steak) claimants holding on to gift cards?

For now, the restaurant is still honoring its gift cards and is, in fact, still selling gift cards online and in its restaurants and that's just good PR, according to Nashville bankruptcy attorney David Anthony of Bone McAllester and Norton.

"Generally, a business like this will try to get approval to honor the cards, especially in a reorganization bankruptcy. The PR hit would be a disaster, as the people who buy or are given gift cards would likely be good customers," he said. "So, they fall into a de minimus type category and courts will approve a reasonable request to honor such obligations as being paid in the ordinary course of business."

The trouble comes if Logan's eventually files for a Chapter 7 liquidation, which could leave gift-card holders holding an empty doggy bag.

For example, when Radio Shack entered Chapter 7, gift-card holders were left to file claims like any other creditors, but were at the back of the line behind bigger creditors and it could be years before they see any money and, even then, it may not be for the full amount. When media retailer Hastings entered reorganization, it put a drop-dead date on its gift cards and those that did not use the cards by the deadline are unlikely to see any compensation at all.

There are 10 Nashville-area Logan's locations, including six in Davidson County, plus stores in Franklin and Smyrna.