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Always Pay By Credit Card To Protect Against Airline Bankruptcy Loss

Published 4/10/08 (Modified 3/8/11)
By MoneyBlueBook

The scenario I am about to paint is very real. Let's say you are planning for a dream vacation. Or maybe it's your honeymoon and you are eager to fly somewhere romantic and spend a week at some remote tropical destination. Or maybe you are splurging for an exciting few days on a luxury cruise ship. Either way, rather than booking your travel reservations through a traditional travel agent, you decide to do it yourself through an online discount travel broker such as Expedia, Travelocity, or Orbitz. You don't like to use credit cards so you decide to pay your reservations using a debit card or even by check. A month passes and now it's only a week before your scheduled trip. Suddenly you get a phone call or an email advising you that your travel plans have been halted indefinitely because the travel agency that scheduled your itinerary has declared bankruptcy or gone out of business. Maybe it's not the travel agent but the airline or cruise ship company that has gone bankrupt. The chances of that happening may be slight, but the consequences can be financially disastrous. That's why it's important to protect your upfront reservation money by using credit card payment. Under the Fair Credit Billing Act (FCBA), credit card consumers who purchase with a Visa, Mastercard, or American Express card are afforded substantially more purchase protections then those who make payment using cash, money orders, or debit cards. These days, airline credit cards also offer a wide variety of free miles and travel rewards to encourage their use.

How To Get A Refund When Your Airline Or Travel Agency Goes Bankrupt

A few days ago, I read in the news that Aloha Airlines had filed for Chapter 11 bankruptcy protection. Shortly after that, low cost ATA airlines joined the bankruptcy bench as well. Around the same time, I checked my Facebook account and saw that one of my friends was freaking out about the recent ATA bankruptcy filing. Apparently she had purchased several tickets for a trip to Hawaii on ATA airlines and had received e-mail word from the bankrupt company that all flights were now being halted and canceled with no refunds being honored. The total amount in danger was in excess of a $1,000. Thankfully I later found out she had made payment using her trusty credit card instead of using her debit card like she normally did. Because she paid by credit, she was able to dispute the charge and fully recover her money through the credit company by calling on the charge back provision for services un-rendered. Thousands of other customers may not be so lucky and may ultimately lose their money. If my friend had purchased using cash or debit, she would have fallen into a long uncertain line of unsecured creditors hoping for a handout from the bankruptcy court. Even those who had purchased additional travel insurance would have been unable to rely on it as the vast majority of travel and flight insurance policies do not cover air carrier insolvency.

Assuming you made the right decision by purchasing your tickets with a credit card, the minute that you hear news of the demise of your airline or travel agency, you should immediately dispute your credit card charge. By doing so, you have a much higher chance of getting your money back. Don't pin your hopes on a favorable resolution by calling your travel agent or contacting the airline company directly since they will probably be swamped with angry calls at that time. You are likely to encounter nothing but a newly installed automated refund phone line or website designed to deflect inquiries. Sometimes airlines will offer the ability to transfer your flight to a bigger codeshare partner airline, but that is not always the case. Most online discount travel sites such as Hotwire or Priceline are unlikely to issue refunds in the event your airline goes bankrupt.

To dispute a credit charge, contact your credit card issuer, whether it be Citibank, Chase, or American Express, and request a charge back pursuant to the Fair Credit Billing Act. Under the Act, open-end credit accounts such as credit cards are governed by a strict set of federally mandated dispute settlement procedures. Disputes regarding fraudulent credit card charges, unexplained transactions, and charges for goods and services you didn't accept or weren't delivered as agreed are all covered. Here are the steps you will need to take to guarantee your credit card purchase rights:

  1. Write to the credit card issuer at the address given for billing inquiries or bill disputes (not the address for sending payment), and be sure to state your name, card account number, and address.
  2. State that your airline or travel agency has declared bankruptcy and has ceased operations, that you will not receive the services that you charged to your account, and that you are requesting a billing error credit along with a charge back while the credit company is investigating the matter.
  3. Enclose a photocopy of the ticket, itinerary or receipt if possible, and indicate the price of the transportation and the date it was purchased. Remember to keep the original copies. If the transportation was partially used, identify the used and unused segments.
  4. You must send the dispute letter by U.S. postal service, preferably by certified mail, with a tracking number and return receipt requested.
  5. You must also submit your billing dispute letter so that it reaches your credit card company within 60 days after the first bill containing the error was mailed to you.

Don't Think That It Can't Happen To You

The airline travel industry has been rocked by soaring jet fuel prices lately and lingering questions persist about the ability of certain airlines to remain operational. As such, airline companies have struggled to keep a lid on costs while still keeping airline ticket prices competitive. However, there are simply too many airlines out there competing for too few passengers, and the intense competition has caused some companies to drop out or engage in mergers. Even the big airlines are not immune. In the last few years, most of the major airlines have filed for Chapter 11 bankruptcy protection at some point or another, including U.S. Airways, United Airlines, Air Canada, Northwest Airlines, and Delta Airlines.

When a company files for Chapter 11 bankruptcy, passengers and customers who aren't protected by third party payment protection lose everything. During a Chapter 11, the airline corporation continues to run its business operation as normal while it undergoes debt and contractual restructuring. However, during this time, it is not bound or required to honor prior purchase obligations under the grant of an automatic stay that prevents creditors from collecting unpaid debts while the bankruptcy protection is in force.

At the end of the restructuring period when the troubled company finally emerges from bankruptcy, which may take months or even years, the bankruptcy court usually gives the company a fresh start by granting a partial or full relief from all outstanding debts. If you were one of those unlucky few who purchased tickets using an unprotected method of payment, then you are out of luck and will likely end up with nothing. Consumers usually fall into the category of unsecured creditors. Under bankruptcy law, unsecured creditors have the lowest priority in terms of prevailing in their claims against the residual assets of a bankrupt company. This is one of the many reasons why I am such a staunch proponent of the use of reward credit cards by responsible consumers.

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15 Responses to “Always Pay By Credit Card To Protect Against Airline Bankruptcy Loss” 

  1. Ken Clark @ CollegeSavings.About.com says:

    Geesh... I've got four tickets booked on Frontier (filed bankruptcy today) for next month... I'm totally glad I booked them on one of my cards!

  2. AndyS says:

    Great article....and a really good fact to know. I think over the next year a number of travel related organization are going to go bankrupt. Credit cards are powerful tools if used correctly.

    Just discovered this blog as well - great articles and I will be subscribing. Hopefully you'll get a chance to check my pf blog as well.

    Andy.

  3. Gray says:

    Very good advice. I think credit cards are the best way to go for most things, because of the built-in protections (for instance, I'd rather have someone steal my credit card than my debit card), as long as you're practical about making sure you have the money in the bank to cover your charges and pay them off at the end of each month.

    By the way, love your blog. I'm off to check out more of your articles. Cheers!

  4. Mark says:

    I had purchased 11 tickets from Detroit to Hawaii on ATA ticket stock. I first called my credit card company, Citibank, and they gave me an immediate conditional credit. Since this time I have sent information 5 times and have been told:

    "Thank you for providing us with the necessary information
    we requested. We have issued a conditional credit to
    your account and have forwarded the details of your dispute
    to the merchant. We will notify you of their response
    within 65 days. Thank you for your patience in this matter.

    You'll receive a statement message or letter confirming
    the action taken on your billing dispute. If you have
    other outstanding billing disputes, you will be updated
    via email, statement messaging or other correspondence as
    their status changes."

    I am still not confident that this mess is over.....

  5. A.D. says:

    I purchased 6 tickets from SF/LA to Hawaii with ATA via Expedia, who naturally have washed their hands of it. They hadn't even the courtesy to refund their service charges on request. Talk about sympathetic!

    I reported the matter to my Irish credit card company, MasterCard, and when I provided all the information they requested they gave me a conditional credit. I have sent other information but when following up have been told that it is still a conditional credit. I'm not sure what they're waiting on. I thought it was because the act mentioned above (Fair Credit Billing Act) was US law that they may not cover me, but it looks like others are in the same boat.

  6. Dan G. says:

    What about international carriers like China Air, or Singapore Air? If they go bankrupt, will my credit card save me from losing my money?

  7. Raymond says:

    Dan G:

    I don't see why not? Credit card buyer protection programs are generally applicable to all qualified cardholder purchases, which would presumably include those for services provided by a foreign airline company as well.

  8. Mark S says:

    Hi!
    I bought my Aloha Air tickets more than 60 days BEFORE the bankruptcy announcement. A week before my flight, the bankruptcy was announced. I contacted my Visa provider (Charles Schwab), and was told I was out of luck... More than 60 days had elapsed since the time of my purchase, and I wasn't entitled to any protection after 60 of of it... Does this seem accurate?

    I thought I was simply out the money... Was I entitled to protection 60 past the bankruptcy? Was I mis-advised by Schwab Visa, and now need to pursue action against them for negligence?
    Thanks!

  9. Raymond says:

    Mark,

    Man that really sucks...my understanding is that credit card billing disputes must be made within 60 days that the time the "billing error" was discovered (read from Fair Credit Billing). In your case, the charges for goods and services that weren't delivered as agreed needed to be made within 60 days from the time the charge appeared on your bill. Unfortunately the buyer protection benefits that credit card companies provide aren't indefinite in time duration. Unless your contractual agreement with Schwab or Fia Card Services that runs the program provide for a longer duration, you might be out of luck. Sorry!

  10. john todd says:

    Do you know if a similar act exists in Canada.I bought tickets for Zoom Airlines through Amex.

  11. warren garner says:

    I got 2 tickets with aloha airlines and paid with a Pre-paid RUSH Card and I tried to get some kind of refund and through it all the tickets expired while I was dealing with Rush Card, and now I am out of luck. that infuriates me to the fullest. loosing that money hurt me financially. and now I will no longer use Rush card for their services.

  12. TERRY says:

    The best way to get the best value for traveling is to buy your flights separately and not from a tour company that packages everything up. I found cheap china flights from bamboobookings.com

  13. Michelle says:

    What about with Mexicana Airlines new bankruptcy proceedings? If I purchased a trip through Resort Vacations to Go in January for a trip in October, will this be covered? Am I able to cancel my reservations now, or do I need to wait for more direction from what Mexicana is going to do?

  14. Toddy says:

    I've been dealing with this Mexicana mess (via Travelocity) and here's what I've been told:

    1. If you call Mexicana, the recording will tell you to 'make other travel arrangements'.
    2. Travelocity will refer you to the Mexicana website to file a claim.
    3. IF you paid with your credit card MORE than 60 days ago, you're out of luck there.
    4. If you bought the travelers insurance, this is your only recourse. And even then, this situation might not be covered.

    Some consumers want to take a wait-and-see attitude claiming that they MIGHT start flying again within a few months. We've got a wedding in Playa del Carmen in Oct. and can't do that. I've rebooked on Aeromexico and am just hoping to see some sort of a refund from Mexicana in this lifetime.

  15. Ashley says:

    Michelle,

    Have you found anything out about your Mexicana flight?

    I booked through Expedia.ca and they are not taking any responsibility for this, nor is Mastercard, who I used to book the flight with.

    I'm furious, because my payment went to Expedia.ca who then paid Mexicana. Now Expedia does not want to refund me because they have not received their money back from Mexicana.

    Mexicana claims they will refund customers, but they have until December 15, 2010 to do so.

    I was supposed to go to Costa Rica on November 11th and now that is not happening.

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