Here's what could happen to your Kenmore warranty now that Sears is in bankruptcy court

  • Sears says it will honor warranties, protection agreements and guarantees.
  • Is it ever a good idea to buy an extended warranty? Here's what to know before you shell out extra cash for a contract from this $44.6 billion industry.

Get ready for holidays sales at Sears, which will be followed by the permanent closing of 142 stores.

But what happens to anyone with a Sears Kenmore appliance and a possibly defunct warranty?

"We are honoring our warranties, protection agreements and guarantees as normal," the company said in a statement. If you need help with a replacement part for your appliance, check out the Sears PartsDirect Site.

What can you do if a company goes under when you have a service agreement?

That's a common question, according to the Federal Trade Commission, and the short answer is, not much. "Before you sign a contract, think about the company's financial situation and consider whether the business is reputable," the FTC said under the section, "Who is responsible for the contract."

Generally, consumers haven't had to worry about their warranties being dissolved in the wake of a company going out of business, according to Eric Arnum, editor of Warranty Week, which reports on the warranty industry.

When Circuit City and CompUSA filed for bankruptcy, Arnum says, outside insurance companies stepped in, and all extended warranties were honored. "That's been the case for decades in the U.S.," Arnum said. The reason: Many states mandate that a company work with outside insurance companies or demonstrate assets of a certain amount to continue coverage for consumers.

So you probably don't have to worry about your warranty, but you should definitely use that Sears gift card. And while we're on the subject, you might want to think twice about getting extended warranties in the future.

The appeal is undeniable. When something goes wrong with an appliance, as it invariably will, it's reassuring to think the repair bills will be covered.

Here's why you shouldn't rush into this arrangement.

Warnings about extended warranties aren't new. Consumer Reports has been pushing back on them for decades.

"Consumer Reports has always advised consumers to be wary of extended warranties," said Margot Gilman, the nonprofit organization's money editor. "Whenever we've analyzed them, and surveyed our members about their experiences with them, we've reached the conclusion that the benefits don't outweigh the costs.

"There are better, more financially prudent alternatives to extended warranties for people who want to protect themselves against products that may break."

Consumer Reports found that almost two-thirds of consumers rated aggressive pitches to buy warranty products a top annoyance.

Not everyone's listening, though, and the industry continues to balloon. Last year, $44.6 billion in extended warranties were sold, according to Warranty Week. In 2010, extended warranties totaled $31.3 billion.

About 20 percent of people who buy a major appliance buy an extended warranty or service contract, according to Consumer Reports. They found the two most aggressive warranty pitchers are P.C. Richards and Sears.

People are often helpless in the face of a determined salesperson, says Warranty Week's Arnum. There are people who can sell snowshoes in Hawaii, and they are extremely skilled.

More in Personal Finance:
When it comes to difficult financial tasks, few seek help
Hiring managers say this is the most critical part of a job interview
Do this one thing to save your financial sanity during the holidays

"Most consumers do not go into the store even thinking about extended warranties until the salesperson says, 'Hey, thought about protection?'" Arnum said. "All the research they do is on the product, so it's easy to convince one in three people, on average, to buy them."

Many consumers see their kids' cellphones as a peril worth insuring. They might not think they need the break/fix protection, Arnum says, but loss/theft is seen as worthwhile. "What if I drop it?" he said. "You see that with laptops [people are attracted to] the accidental damage protection. Even the Consumer Reports people say loss/theft is good."

More reasons to be wary

Another thumbs-down on extended warranties comes from Ira Rheingold, executive director of the National Association of Consumer Advocates. When something is a big profit center for a company, it's probably not in the best interest of the consumer, says Rheingold.

"I don't typically think they're worth it," Rheingold said. "Whether [something] needs repairs along the way, the standard warranty is usually good enough."

Another issue: You can't always see the cost of a warranty before you buy a product. On the Sears website, which is still open for business, a customer has to place a specific refrigerator in the shopping cart before seeing the cost options for an extended warranty. The cost can vary, depending on the make and model.

Be careful about allowing financing to add to the cost of the warranty itself. "Not only are you paying financing on the product, you are also financing the cost of the extended warranty," Rheingold said. "You shouldn't finance [at all] if you don't have to."

Look out for the "gotchas" in extended warranties, says Gilman, which you'll find in the fine print. They're carefully written to deny coverage for almost any reason. For example, a recently issued auto service contract excludes brake drums and rotors, air bags, door handles, lock cylinders, the exhaust system and body panels, among other parts, according to Consumer Reports.