If you’re on the brink of filing for bankruptcy, the fate of your accumulated credit card rewards doesn't really matter much in the larger picture. Even so, in such circumstances, every penny carries a lot of psychological weight, so this is a common question. While you may see those rewards disappear, it may be possible to save them.
How to salvage your rewards
The only sure way not to lose your rewards is to use them before you file for bankruptcy or default on the card. That means redeeming your points or miles and cashing out your cash back.
Most credit card rewards programs do not allow cardholders to access their rewards if their account is in default, so if you're already in trouble with the issuer, you may find that your points are frozen. Even if you’ve been keeping up with your payments, if you owe a balance on the card, your card will be considered in default once you file your bankruptcy petition. This means you may never get to use your rewards.
If you have a branded airline or hotel credit card, you may have more luck. The card issuer isn’t the only one that controls your rewards; the travel loyalty program has some ownership over them, too. Before you file for bankruptcy or default on the card, transfer the points to the airline or hotel loyalty program to get them safely out of your credit card account.
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You won’t necessarily lose your card
When you’re filing for bankruptcy, you have to include a list of all of your creditors with whom you have debts. However, if you have a credit card with no balance, it’s technically not a debt and doesn’t need to be listed. This means your lender won’t be sent a notice of your bankruptcy, and you likely won’t be forced to surrender the card and can possibly even keep the account open.
That said, your issuer may find out about your bankruptcy in other ways, such as through a credit bureau, so your card isn’t completely safe from being canceled. You might be able to keep the card by reaffirming it after the bankruptcy. This means you sign a new contract with the credit card issuer that says you are personally liable for it again. Keep in mind, though, that this removes the benefit of the debt being discharged by the bankruptcy, so it might not be the smartest move for your situation, unless you find this is the only way to keep your rewards.
Considering whether it’s an asset
When you file for bankruptcy, you also have to declare your assets. Some experts say you don’t need to list rewards as an asset, especially since credit card fine print says points and miles have no actual value. However, other experts recommend that you do disclose your rewards since you stand to benefit from them, especially if it’s a large amount.
It’s rare for bankruptcy trustees to ask about frequent flyer miles, since it would be challenging for them to administer. Additionally, most of the programs include language that says the miles or points can’t be transferred or sold, which also makes it unlikely a bankruptcy trustee would take them from you. If you’re uncertain what to do in your situation, it’s best to consult with a bankruptcy lawyer.
One important thing to note: If you cash out your rewards before you go into bankruptcy and redeem them for gift cards or goods, note that these are now assets that you should list on the bankruptcy petition.
