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If Sears goes bankrupt, what happens to your product warranties?

Why it matters to you

If you have a Sears service warranty for any product, you'll want to watch what happens as business questions unfold.

It certainly sounds like the venerable Sears could be in financial trouble, as reported by Fortune. Acknowledging reported doubts about Sears’ ability to remain in business, a company spokesperson told Fortune in an email statement:  “We want to be very clear that we’re taking decisive actions to mitigate that doubt.” So if you own appliances you bought from Sears with either a standard or extended warranty, you may be wondering right now what happens if Sears does go under? Are you still covered?

According to Business Insider, a Sears spokesman said, “We are a leader in the service contracts industry and proudly stand behind our product. Sears, as well as any other company that legally sells service contracts, is required to meet regulatory requirements designed to provide adequate resources to fulfill service contracts into the future. We will fulfill our commitment to our customers and members.”

That Sears statement sounds like you’re covered. Bankruptcy lawyers, however, don’t see it that way. Business Insider spoke with attorney Coralie Lopez-Castro, a partner at Miami, Florida-based law firm Kozyak Tropin & Throckmorton. “The warranties are going to be a huge issue,” said Lopez-Castro. “There’s a real risk that they will not be honored.”

Lopez-Castro explained that in the case of bankruptcy, Sears would have to pay creditors, including suppliers, prior to covering customer warranties and loyalty points. When companies file for bankruptcy, the court allows them to try to restructure debts if they’re trying to remain in business.

When Sears filed its annual report for the fiscal year that ended January 28, 2017, the company said, “Our historical operating results indicate substantial doubt exists related to the Company’s ability to continue as a going concern.” In a blog post, however, Sears CFO Jason Hollar wrote about the initiatives the company was taking to cure its financial ills and stated that “we remain confident in our financial position and remain focused on executing our transformation plan.”