Posted by William Charles on March 24, 2020
Misc

Published on March 24th, 2020 | by William Charles

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What Happens To Your Miles & Points In The Event Of A Bankruptcy?

There is currently a lot of uncertainty in the travel industry, as hotels chains & airlines push for government bailouts one of the things their respective lobbying groups and media teams push is the prospect of filing for bankruptcy. This has lead some readers to begin to worry about what happens to their points & miles in the event of a bankruptcy.

The short answer is that it really depends on the type of bankruptcy we’re talking about. For example in 2005 Delta filed for chapter 11 bankruptcy and after 19 months of restructuring they exited that bankruptcy. Before they entered bankruptcy co-branded credit card partner American Express provided delta with $600 million in cash and financing. In this case Delta frequent flyer members kept their miles and Delta was able to show that this program was a positive asset. American Airlines also filed for chapter 11 bankruptcy in 2011 and members kept their miles as well. A counter point is Midway Airlines when it filed for chapter 7 bankruptcy in 1991, all 700,000 members lost their miles.

It’s hard to know what will happen this time with so much uncertainty at the moment. I think we will see some airlines enter chapter 11 bankruptcy but in those cases I think points & miles are relatively safe as the loyalty programs as a whole are extremely profitable. The other thing to keep in mind is that loyalty programs can basically make changes at any stage so while the COVID-19 situation is extremely scary it’s not unique in the threat to miles/points.

 



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Clownboy
Clownboy

Are they likely to have massive devaluations?

dk
dk

No, they are guaranteed to have devaluations! Points are churn and burn they are in hyper-inflation, they are not a earn and hold asset like equity bonds or property.

Ferris
Ferris

They are like Venezuelan currency!

debit
debit

What happens to gift cards?
What happens to already booked tickets?

Most travel bloggers are useless. Still pushing credit cards. They pick all the low hanging fruit

This is most pertinent. Also which airline’s are most likely to go bankrupt and cease operations.

Scotty
Scotty

AA is the highest leveraged(debt to earnings*) around 4X, United is second around 2.75X. SWA has the best BS around ~.7x. Delta, jetBlue, and Alaska are in the middle. The bargain basement airlines such as allegiant, frontier, and spirit might be on the chopping block in terms of chap 7.

Gary
Gary

If you can find someone that can figure out who will and will not survive – INVEST everything you have in that person.

Thomas Velazquez
Thomas Velazquez

Southwest, speculative

John

They’re travel bloggers not lawyers. Do a google search. Goddamn boomers

sdsearch
sdsearch

History shows that it’s the smaller airlines in the US that typically go out of business (like the Midway Airlines shutdown mentioned above). The larger airlines either just do bankruptcy restructuring and/or merge.

So in today’s US market of airlines, the thing to be concerned about perhaps more is a merger between airlines which have extremely different programs. If an airline with cash-equivalent points and no international partners buys up a struggling airline with a miles redemption chart and international partners, those latter miles may turn into the former points, and although they wouldn’t disappear, the value of them might radically change due to moving to a totally different airline and due to having much more limited redemption possibilities as a result.

YoniPDX

I have tremendous respect for the service Chuck William Charles as they don’t hawk CC for personal gain -not that it in and of itself is wrong.

But not sure that pushing new signups with the rapid changes and closures of so many non-essential businesses – is the best for other travel blogs. But we are adults.

Not in the mood for a FR or eyeballs on accts so I’m holding off on new apps for the interim.

Airlines that have good cash balances SW and AS – (Berkshire loves SW and DAL).

I still own stock in AS & SW – but I liquidated out of all our indexed mutual funds last month when market was at 27K (but still buying same funds on bi-weekly basis for DC and 457 retirement accts). I digress that even with Gov’t help we could still see Chap 11/7 maybe LCC maybe legacy’s.

Electroman
Electroman

“Get in line” is what happens.

SDubbs
SDubbs

Still some decent credit cards out there. P2 picked up the BoA Premium instead of a travel card for the $500 cash back since we have a few big purchases this month with the hopes of double dipping the $100 travel credit if we’re able to travel again towards the end of the year.

Dave M
Dave M

I just got that card as well. Any idea what works for the $100 credit? Similar to old Amex play?

Doctor of Debit
Doctor of Debit

I earned sign up bonus on an Amex card several months ago, and now some of my bookings will be probably cancelled, and those initial transactions will be reversed. What will happen to my sign up bonus? Should I transfer it to an airline partner or should I keep them in my Amex account? Would Amex try to charge me money if I spend the bonus points and it turns out I’m no longer eligible for that sign up bonus?
This is really a difficult situation because I wasn’t trying to game the company or anything like that. I have already paid a hefty annual membership, and I wouldn’t do that if I wasn’t sure about getting the sign up bonus of that card.

Stone
Stone

Wow this is a real conundrum. I am sorry to hear this. If you have done a lot of spending on this card since this, I am sure Amex will probably let it pass if you call and explain… me just guessing. If it’s been in the sock drawer, chances are their pre-existing algorithms will pull up the refund and do a claw back. They are hurting too, so I doubt they will give much leeway.

sdsearch
sdsearch

The typical recommendation in a case like this (which can happen even in more normal circumstances to some people) is to make new spend on the card by at least the amount of the refund(s), to show Amex “good faith”, even though it’s technically too late.

Maloney
Maloney

Waiting to find out the same thing. If they claw I will definitely close.

Ap
Ap

Terrible that I’m siting on about 150k worth of Marriott points that were going to be used for some nights during my anniversary this December in France 🙁 Really hope they don’t get devalued and really hope I can actually use these dang things soon. Do you guys think it’s better to book now and hope it’s contained by then? Marriott will just cancel regardless, no?

Greg
Greg

I would say definitely book now to lock in the current point price, in case of devaluation. If you can’t travel Marriott is easy to cancel and will refund the points. If they go the other direction and the point cost goes down (like southwest has lately) you can always rebook.

With points that are easily refunded or cancelled I try to book out as far as I can since they often get devalued or hotels move up categories.

Stone
Stone

Yes, I would book now and reserve. They allow an effortless cancellation and refund.

However, there will almost certainly be a second wave of the pandemic this fall/winter. Unless there is a vaccine ready and widely distributed and proven treatments too in common usage by then, this winter will not be a time to travel.

stumpy
stumpy

Which chapter (of the Bankruptcy Code) a business files under makes all the difference here. Chapter 7 bankruptcy leads to liquidation of the business, in which it winds up its operations, sells off its assets, and dissolves. In a Chapter 11 bankruptcy, the business continues its operations and paying off its creditors, with the goal being to restructure and eventually emerge from bankruptcy as a profitable business.

Not every Chapter 11 bankruptcy is successful, however. If a business is unable to reorganize, it may convert the proceeding into a Chapter 7 bankruptcy, starting the liquidation process. So if a business you care about files under Chapter 11, keep an eye on how that process goes.

Gary
Gary

I would guess that most of the airlines that survive will leave points intact. If they cancel them, way too many customers will just leave and go elsewhere. The airline has way more at stake than any of us.

Jim
Jim

Trying to cash out half of my Hilton points thru Amazon (something I would never normally do). I keep getting an error trying to link my account though. Anyone else experience this.

Benjamin
Benjamin

How would you even do this, what can you do with hilton points, I have over 180K.

Parts Unknown
Parts Unknown

You can use them at 0.2 cpp, so your 180k is worth $360 at amazon.

dk
dk

Just dont f*ck w Alaska and I can keep my cool lol

Patso
Patso

How do we cash them in when we cannot travel?

Gibunono
Gibunono

Any hope that American Airlines will reinstate our forfeited miles? Nowadays banks are so aggressive in taking adverse actions and there is no consumer protection essentially. American Airlines achieves a new low by forfeiting miles earned from credit cards citing they are not earned the way as they want. WTF.

MickeyMouse
MickeyMouse

Question on the opposite end –

What happens to an individual’s points/miles if they end up having to file for Chapter 7?

A friend of mine was self employed for 10+ years, they had a good business and they’ve been put out due to COVID-19. They don’t qualify for unemployment because they were self employed and right now a lot of expenses are adding up. So my friend is strongly considering bankruptcy as an option.

COBOLCODERUSEALLCAPS
COBOLCODERUSEALLCAPS

That’s very unfortunate to hear. It’s these sort of stories that I always emphasize everyone to have a year’s worth of emergency funds so that they have enough time to get back on their feet.

MickeyMouse
MickeyMouse

He has a wife and two kids, he said his business has been declining since February when the virus was announced more in the US. He had $15,000 saved but his rent was $2,450, then car payment, utilities, phone, insurance (medical & auto), living expenses for 4 people, plus credit card payments. Some are saying things won’t improve until June, and even then his business likely won’t pick up right away or be back to how it was until maybe September.

I’m just wondering if it came fo that would he be able to keep those points he’s spent years accruing?

i'm sorry
i'm sorry

so sorry

COBOLCODERUSEALLCAPS
COBOLCODERUSEALLCAPS

I don’t have a definite answer, and the post addresses it as a big maybe depending on the carrier’s goodwill to their frequent flyers. My thought is based on the fact that during a restructuring, the debt holders are preferred from Employees, Suppliers, Bondholders, Preferred Shareholders, Common Shareholders. My guess is that since frequent flyer miles are a form of unsecured debt, that they would be somewhere between bondholders and preferred shareholders, which is not a good thing since by then, bondholders would already have taken an haircut on their amount owed.

MickeyMouse
MickeyMouse

I was actually asking about if my friend filed bankruptcy, and not the restructuring bankruptcy the total wipe out bankruptcy.

If he did that would he still retain his points? (Sorry if that wasn’t clear).

Matt P
Matt P

First, why does he have credit card payments and miles? If you’re playing this game, you should be paying them all off otherwise you are losing money to get miles.

As far as losing points in bankruptcy, I doubt it since they can’t be liquidated to pay off debts, which is the point of bankruptcy.

MickeyMouse
MickeyMouse

He’s not an MS’er he did sign up for a few cards for the bonuses which he transferred the points to travel partners. Then he continued using those cards for personal/business expenses racking up points.

Thanks for the answer he’s just considering it at this point, but it may be a reality. He read some mixed answers online and had asked me I didn’t have an exact answer so I thought I’d ask.

Covert Beach
Covert Beach

In a Chapter 7 it would really come down to the type of points we are talking about. If they are Hotel or Airline points then they are probably safe because they have no direct cash value. Transferable Points like Chase Ultimate Rewards, or Membership Rewards, etc, or straight cash-back points like Wells Fargo or Barclay Arrival+ points do have a cash value that can be applied to debtors that take credit cards, so they are probably gone. Note that transferring the points out of transferable currency to a non-cash back currency after he is publicly considering bankruptcy could be considered fraudulent conveyance. While Bankruptcy is defined by Federal Law it is influenced by State Law so rules can vary so he should seek professional counsel before doing anything.

86
86

My two cents: those rewards are not his. They can’t be taken through a divorce, judgement lien, or from any other third party that I know of. You play this game by the rules of the airlines and the banks, etc. It’s their currency and those rewards aren’t yours until you cash out. Amex clawbacks are a prime example.

In the terms of some of the credit cards I have, they’ll take away all your accumulated rewards if you file for bankruptcy.

A M
A M

I imagine points through the credit card companies that havent been redeemed at all are safe?

Greg
Greg

Yeah I think citi, BOA, Well Fargo, US bank, chase, amex, etc… fall in the too big to fail category

sdsearch
sdsearch

Sort of. But independent of the current financial situation, credit card points programs can sometimes be discontinued, as in the current case of US Bank’s FlexPerks (which was decision US Bank made before Covid-19 appeared). You can still do something with the points, but what exactly may change and how long you have to use up your points you have to pay attention to.

So as long as your credit card points are with a major bank, they are likely to be safe as long as you’re paying attention to any news about them.

Frito Pendejo
Frito Pendejo

Dont all their policies basically say they can remove/devalue any time they want and points have no real value? They are only backed by the whims of the company and their reputation.

Jay - ⒿⒶⓨ 🙈 🙉 🙊
Jay - ⒿⒶⓨ 🙈 🙉 🙊

Hey William Charles or Chuck

times are tough for some, travel/hotel stays gonna be down for a while and
also an uncertainty about devaluations of points…

Any chance you could make a post about best ways to get cash for points/miles?

As right now its just some dead capital that prob can be better used for people who need cash in these difficult months.

For example:
I have like a million Chase UR points.
Even having the CSR cc, I don’t need them for travel/hotel since what little I do actually need for that I continously get from other sign-up bonusses (e.g. I still haven’t used up my 2017 BoA Merrill+ flight points).
I know UR’s are generally worth 1cpp, but any better ways to convert them into cash?
Is re-selling to a broker a safe option maybe and how does it work? Anything else?

Might really be a good topic for an overview post. TIA 🙂

Frito Pendejo
Frito Pendejo

$10,000 cash sounds pretty good when the 1.5cpp travel options are no longer… available. I think you’re crazy to keep so many points in the bank if losing them would be painful to you

Jay - ⒿⒶⓨ 🙈 🙉 🙊
Jay - ⒿⒶⓨ 🙈 🙉 🙊

I agree with you. Just kept collecting over time (mainly with my two Ink cards), but now might be a good time to cash in (I also will cancel my CSR once the AF hits).
But hoping to find a secure way to get more than 1cpp.

Also, this was just my one example (and thankfully Im not hurting too much for immediate cash). There was another one in this thread about someone cashing out hotel points at 0,2cpp, and so on…

Just thought an overview might be a good topic in general especially now with the shutdown
(and hopefully find me my >1cpp option 😉 )

Ren
Ren

Here’s what happens to gift cards and points if a company goes Chapter 7: https://wompwompwomp.com/

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