BACK

Cash Back

Airline frequent flier miles should survive if you file for bankruptcy

Summary

Banks can cancel reward cards if you’re insolvent, but you shouldn’t lose frequent flier points you’ve earned through the cards if they’ve already been posted to your airline account

The editorial content below is based solely on the objective assessment of our writers and is not driven by advertising dollars. However, we may receive compensation when you click on links to products from our partners. Learn more about our advertising policy.

The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired. Please see the bank’s website for the most current version of card offers; and please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

Question

Dear Cashing In,
Due to the economy and a couple of bad job changes, I need to file bankruptcy. I have a Chase Southwest Airlines rewards credit card connected to my rewards points account. I am hoping that Chase will allow me to keep the credit card, as I have no outstanding balance on the card. However, if they cancel the credit card, will the points I have on the rewards plan be canceled as well? Or will I be able to keep the points so that I can use them when I am in a better financial situation? — John

AnswerDear John,
When it comes to reward credit cards offered by airlines, it is important to keep in mind that we are talking about two different accounts.

First, there is your credit card account, which is run by a bank. In your case, it’s Chase. The bank handles the heavy lifting when it comes to the administration of the credit card.

The bank accepts the application for the credit card, reviews your credit and issues you a card (or not), sends you bills and accepts your payments. If you need a new card or see a suspicious charge on your bill, you call the bank.

The second account is your frequent flier account. In your case, it’s the Southwest Airlines Rapid Reward program. You set that up with the airline. When you fly, you earn miles into that account. When you charge something on your credit card, Chase sends your monthly information to Southwest, which credits you Rapid Reward points.

Chase and Southwest have a business relationship in which Chase pays the airline for the right to offer the card using Southwest’s name. Southwest agrees to give Rapid Reward points to cardholders, which can then be redeemed for flights.

I’m stressing that these are separate entities and separate accounts because in bankruptcy, they will be treated differently. If you owe money on your credit card, you will owe it to Chase. Like most banks, Chase has a clause in its cardholder agreements that gives it the right to close your account if you miss a payment, file for bankruptcy or do anything that indicates to Chase that you “may be unwilling or unable to pay your debts on time.”

Asked how the bank decides which accounts to close, Chase spokesman Rob Tacey said that there are “many factors involved.” He said any customer in financial distress should contact Chase to discuss the situation.

Separately, when in bankruptcy, you would have a frequent flier account. Although there’s some debate over whether you should list frequent flier miles as an asset on bankruptcy forms, I see nothing in the Rapid Rewards terms and conditions that says you would lose the points. There’s no incentive for them to cancel your miles on account of bankruptcy, and no other creditor would seek to have you sell them to repay a debt because the terms and conditions say that the points “have no cash value and are void if sold, purchased, brokered or bartered.” Frequent flier programs do, however, grant themselves leeway to cancel your account in the event you abuse the rules.

The best guess is that you would probably lose your credit card, but keep your points. Good luck to you, John.

See related:Are business card flier miles taxable?, Automatic stays in bankruptcy stop debt collection immediately

What’s up next?

In Cash Back

Transferring miles, points between airlines not allowed

You can’t transfer the miles from one airline’s credit card reward program to another, so comparison shop and make your initial choice carefully

Published: January 6, 2015

See more stories
Credit Card Rate Report Updated: July 17th, 2019
Business
15.61%
Airline
17.59%
Cash Back
17.68%
Reward
17.58%
Student
17.79%

Questions or comments?

Contact us

Editorial corrections policies

Learn more

Join the Discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company’s business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.