In the current situation, anything can happen. That’s why in the last few days a lot of readers asked me the same question. What will happen to my reward points if the credit card issuer goes bankrupt?
I do not identify myself as a bankruptcy lawyer. But based on what I researched on the internet here is the answer.
Rewards And Points
Before we dive into the answer, it’s important to understand that there are two types of credit cards, brand, and co-brand. A brand credit card will be a card that earns points from a point program belonging to the credit card issuer. For example, with Amex, it will be Membership Reward Points (the Amex Gold, Platinum, etc). A co-branded credit card will be a card that earns airline or hotel points outside the credit card issuers network. For example, the Amex Delta card, which is an Amex credit card, but earns Delta Skymiles. The credit card is a partnership between the credit card issuer and a third party airline/hotel etc.
So when you ask about your reward points, in the case of a bankruptcy, you will need to understand who owns your points. Is it the credit card issuer or the airline/hotel etc. If you have a co-branded credit card and the credit card issuer goes bankrupt, you will not lose any rewards as your rewards are not owned by the credit card issuer. But the opposite is also true if you have a co-branded credit card and the airline/hotel files for bankruptcy. In that case, you can lose your rewards, even if the credit card issuer did not go bankrupt.
Different Types Of Bankruptcy
There are also two types of bankruptcy: Chapter 11 and Chapter 7.
Chapter 11 bankruptcy is when a company needs to restructure its debt and write off certain losses in order to be able to continue to operate. This is the more common bankruptcy filed by airlines, hotels, or other companies.
A chapter 7 bankruptcy, though, is a case where the company goes completely bankrupt!
In a case of a chapter 11 bankruptcy, it’s unlikely that reward points will be lost, as that will be extremely devastating for the credit card issuer, airline, or hotel. Rewards programs are extremely profitable and no one wants to start up with all their customers at once. In 2011, American Airlines filed for Chapter 11 bankruptcy, but none of their members lost any reward points. The same was with Delta in 2005, with United in 2002, and more.
With chapter 7 bankruptcy two things can happen. In the worst-case scenario, all members can lose their reward points. In the best-case scenario, the credit card accounts, airline, or hotel chain, can be sold to another bank, airline, hotel, bailout, etc. and the new owner will hopefully honor your previous points earned with the old program.
I believe that as of now there is no reason to panic about your rewards. It should be pretty safe, as it’s unlikely to be lost in the case of a bankruptcy. In this situation with the coronavirus, I believe airline and hotel programs are more at risk due to the major decrease in travel. But as explained above, history has shown that in 99% of the cases, reward points usually survive a bankruptcy.