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Monday, April 21st 2014

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When bankruptcy freezes an airline credit card, what happens to the miles?

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Cashing In
Cashing In columnist Cathleen McCarthy
Cathleen McCarthy is a journalist whose articles on travel, commerce and consumer topics have appeared in dozens of publications. She writes "Cashing In," a weekly column about credit card rewards programs, for CreditCards.com

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Question for the CreditCards.com expert Dear Cashing In,
I have recently filed for bankruptcy. The first thing I noticed is that I can no longer use my credit cards even though I pay my debts off every month. When I asked customer service people at Chase about my flier miles, I was told that I cannot use them since the bankruptcy went into effect. My lawyer said contact the company that handles flier miles for Chase UnitedPlus Awards. I cannot find anything to help me until I came to this site. I hope you can help me retrieve my miles. Thank you. -- Glenn

Answer for the CreditCards.com expert Dear Glenn,
If you have a Chase United MileagePlus Explorer card, the company that handles most of the frequent flier miles you earned with the card is United Airlines, not Chase. With Explorer, or any credit card co-branded with a partner airline or hotel chain, the issuer only controls the reward points or miles until you're paid up for that billing period. At that point, rewards are deposited into your account with the partner's loyalty program -- in this case, United MileagePlus. Maybe the customer service rep at Chase was referring to miles you earned in the final month that you used the card.

"If the points were not already transferred from Chase to United, Chase may be able to freeze them under the default provisions of the credit card agreement, as it did with use of the credit card," says bankruptcy attorney Ted Connolly. "However, once they are moved to United, the debtor should still be able to use them in the future without interference from the bankruptcy trustee."

Just to be sure, I checked with Chase directly. "If a card is shut off, any miles earned prior to that are sent to and stored with the travel partner," a Chase representative confirmed. "Anyone that has questions about miles earned should contact the travel partner's program for additional information."

Chase does have cards that earn points through the bank's own rewards program, Ultimate Rewards. Perhaps the Chase rep you spoke with was confusing your frequent flier miles with those reward points. If you earned Ultimate Rewards points with a Chase Sapphire card, for example, your rewards could be frozen along with access to your credit card.

If you have to declare bankruptcy and have a lot of rewards stashed away, it's better to have earned your points or miles with a co-branded credit card. Even if your credit card account is frozen, your points or miles are safely stashed with the partner company's loyalty program.

"Many frequent flier programs expressly state that miles or points are not property of the member, and are not transferable by operation of law to any person or entity," Connolly says. "This means there's a good argument that the miles are not even part of a debtor's bankruptcy estate.

"Second, even if they are considered an asset of a debtor that could be administered by a bankruptcy trustee to pay creditor claims, they very rarely, if ever, are. Bankruptcy trustees rarely inquire about airline miles. Even if a bankruptcy trustee learned about the miles, the miles usually have restrictions on transfers that would render them valueless in a sale by the bankruptcy trustee."

Unless United Airlines has a reason to freeze your account, you should be able to access those miles. Regardless, the company to contact about them is United, not Chase. You can start by logging into your MileagePlus account and checking your status and miles balance there.

See related: How to pick a bankruptcy attorney, Chapter 13 bankruptcy: How it works, When can an issuer close your credit card account?

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Published: June 11, 2013


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