Always Pay By Credit Card To Protect Against Airline Bankruptcy Loss
Published 4/10/08 (Modified 3/8/11)
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:
- 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.
- 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.
- 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.
- You must send the dispute letter by U.S. postal service, preferably by certified mail, with a tracking number and return receipt requested.
- 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.