KB Toys has returned to Chapter 11 bankruptcy, says the Wall Street Journal, and will be liquidated by its parent company — Prentice Capital Management.

“Going out of business” sales will begin quickly at the chain’s 277 retail outlets, 40 larger KB Toy Works stores, 114 outlet stores and 30 temporary “holiday stores.”

The WSJ says the liquidation was prompted by a 20% decrease in sales in the second half of this year.

The article had no information about the fate of KB Toys gift cards (though KB Toys website says they have suspended sales of gift cards for the 2008 season) — a detail that is up to the bankruptcy court. Generally, gift card holders are considered “unsecured creditors” unless provisions are made for the store to continue redeeming the cards.

Know anything about KB Toys gift card policy during liquidation? Email us at tips@consumerist.com

KB Toys Faces Liquidation [WSJ]
Gift Card Rules [KB Toys]
KB Toys Succumbs to Holiday Slump [NYT]
KB Toys Files Bankruptcy, Citing ‘Sudden’ Sales Drop (Update2) [Bloomberg]

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