"I have no idea if I'll get the money or not," said Kimberley Hollenkamp, the boy's mother. "I've got to put three kids through college, and it was disappointing to hear we might not get the prize."
Disney, which owned a majority share of Toysmart, heard about the trouble and has promised to set up a trust for Nick Hollenkamp to equal the amount of the prize.
"Disney has a longstanding history of supporting education," said Chris Castro, a Disney spokeswoman. "We thought it was very unfortunate that he got tied up in a bankruptcy proceeding."
But Disney's largess runs out after Hollenkamp, Castro said.
"Disney is not responsible for Toysmart's debt," she said. Although the entertainment giant was a majority shareholder, it too lost money on the company; like other shareholders, it is not subject to making good on Toysmart's debts.
Many Internet companies offer big financial payoffs or contest winnings, and Toysmart's case is a cautionary tale of what could happen to others during the current e-business shakeout.
iWon.com awards a monthly $1 million prize, paid in $40,000 annual installments over 25 years, as well as an annual $10 million prize, paid in $400,000 annual installments over 25 years.
The college scholarship payoff is only the latest headache for Toysmart, which has been at the center of a privacy debate since CNET News.com first reported that it was one of three companies that had sold or was trying to sell its customer list. Toysmart had promised never to share or sell that information.
Other people owed money by Toysmart were glad to hear that Disney set up the trust fund.
"I think they did the right thing by taking care of that child," said Lynette Stone, credit manager for Creativity for Kids, an Ohio-based arts and crafts toy maker owed about $42,000. "It would be great if we saw some dollars from Disney too, but I don't think we can count on it."
"I expect that Disney is very image conscious and wants to do the right thing in this case, but it can't do everything," said Keith Shapiro, a bankruptcy attorney and expert on creditors' rights.
Making Disney pay investors would be like investing in a public company, and when the investment fails, being asked to pay creditors, Shapiro said. "The fact that they are a deep-pocketed company doesn't change a law."