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What happens to your warranty if a company goes out of business?

Sears Canada has an uncertain financial future, and that may have some consumers concerned about their warranties. (The Canadian Press)

News that Sears Canada may not be able to operate beyond the next 12 months due to financial concerns likely has many appliance owners worried.

Major home appliance and small appliance sales have been a core part of Sears Canada’s business for decades. In fact, the company touts itself as the “number one appliance business in Canada.” There are more than a few Kenmore dishwashers and washing machines in homes across the country.

But with each appliance comes a warranty, and owners of Sears Canada appliances may be worried about the future of those warranties being honored.

As Sears Canada considers putting itself up for sale, warranty holders may be asking some tough questions, such as whether their warranty will still be honoured in the future.

What happens to a warranty

Customers may feel uneasy based on recent history.

Ben Moss, a Canadian jewelry company that went into liquidation last August, told customers that their lifetime warranties would no longer be honoured.

But Katherine Hutt, national spokesperson for the Better Business Bureau, says that warranties are usually accounted for when a company is undergoing a restructuring.

“In general, warranties are liabilities of a company and are factored into bankruptcy proceedings,” said Hutt.

“A company pursuing reorganization should want to retain the confidence of its customers by ensuring the continued viability of customer commitments like warranties.

Hutt adds that in a liquidation situation, the status of warranties held by customers are less certain. There is a chance they’ll be unaffected by the retailer or manufacturer’s bankruptcy if the warranty is managed by a third party.

When Ben Moss told customers their warranties wouldn’t be honoured, the Better Business Bureau advised warranty holders to file a proof of claim with the Superintendent of Bankruptcy Canada Outreach and Complaints and apply to be on the list of creditors in the event there was a settlement.

But even in that case, chances were that customers would see very little actual money.

Going in with a plan

Before you even purchase a warranty, it’s best to know the fine print.

“Prior to making a purchase, consumers are encouraged to research the company offering the warranty,” said Harry Malhi, a spokesperson for the Ontario Ministry of Government and Consumer Services. He says if a company closes down, they may not be able to enforce the warranty, so it’s worth familiarizing yourself with who is responsible for honouring the warranty, and what the conditions are if the company goes out of business.

If you think a company you have a warranty with has gone out of business, consumers have two main things to check for:

1. Is another company now responsible for enforcing the warranty? Check with the new owner to see if they will be honouring existing warranties.

2. Has the company offering the initial warranty declared bankruptcy? If so, verify on the Superintendent of Bankruptcy Canada Outreach and Complaints site or by calling (toll free) 1-877-376-9902.

Malhi says that if no trustee is appointed in a bankruptcy case, consumers may wish to consult with a lawyer to see if they have any legal right to compensation. In Ontario, they can also contact Consumer Protection Ontario toll free at 1-800-889-9768.

The Sears Canada situation

Concerns around long-term appliance warranties first arose in the U.S. with the company that shares the same name, Sears Holdings. When rumblings of Sears’ financial troubles began in March, Florida-based lawer Coralie Lopez-Castro told Business Insider that warranties would be a huge issue, and “there’s a real risk that they will not be honoured.”

Sears Canada Inc. operates as a separate entity from the U.S. company Sears, which holds a nearly 12 per cent stake in the Canadian spin-off. Sears Canada separated from Sears Holdings in 2012.

By default, products like major appliances at Sears Canada come with a one year warranty.

The extended warranties for major and small appliances, lawn and garden products, electronics, jewelry and watches, furniture, mattresses, heating and cooling systems and more are offered through Sears Protection Plans.

Depending on the product, customers are offered different options for replacement, repair and upkeep for their products.

The good news is, Sears Canada says that the company has no plans change the way it honours warranties at this time:

“Sears Canada continues to honour all warranties and guarantees it makes and has no plans to change that practice,” a spokesperson for Sears Canada said in an email to Yahoo Finance Canada.