The Bankruptcy Bonus: Do Miles Survive When Your Finances Don’t?

🎧 Always Turn Left: The Bankruptcy Black Hole | How to Save Your Loyalty Points & Miles

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The Invisible Asset Nobody Talks About

When most people think of bankruptcy, they picture the obvious losses: foreclosure signs, repo trucks hauling off the leased BMW, a credit score in ashes. What they don’t picture? A bank quietly hitting delete on their hard-earned stash of miles and points. But it happens.

Here’s the brutal truth: loyalty points live in a weird gray zone. They’re not property. You don’t technically own them. They’re contractual “rewards” that issuers can freeze, claw back, or vaporize the second they decide you’ve broken the terms. Bankruptcy is the ultimate “broken terms.”

And yet this gray zone creates opportunities. Bankruptcy courts don’t always know how to treat points. Trustees are inconsistent. Airlines don’t want to get dragged into legal messes.

The result? A lot of people slip through with their points untouched. Others lose everything overnight.

Why Creditors Care (And Why They Might Not)

Let’s say you owe $50,000 on a credit card and file Chapter 7 bankruptcy. The bank is about to eat that loss. Do you really think they’re going to let you keep your 500,000 Ultimate Rewards points earned on that same card? Not a chance. Chase, Amex, Citi - all of them reserve the right to zero out your balance when your account is closed for bankruptcy. And they usually do.

On the flip side: if you’ve already transferred those points out (say, into United MileagePlus, Hyatt, or Singapore KrisFlyer), they’re gone from the bank’s ecosystem. The creditor can’t touch them anymore. Now they live in the airline or hotel’s program, where bankruptcy courts rarely bother to assign them a value or pull them into the asset pool.

Translation: timing is everything.

The Trustee’s Blind Spot

Bankruptcy trustees aren’t hunting your points balances. They’re hunting cash, houses, cars, and anything they can liquidate quickly. Miles? They’re slippery. You can’t auction off 200,000 Delta SkyMiles in any official way. There’s no “points liquidation market” that trustees trust. So most of the time, miles just don’t register on their radar.

But here’s the catch: if you list them as assets (and you should, because lying in bankruptcy court is the fastest way to lose everything) trustees might ask. They’ll assign a nominal value. Maybe a penny per point, maybe less. They might shrug and say, “Not worth the effort.” Or, in rare cases, they’ll ask for you to redeem them for vouchers or credits that can be counted as cash-equivalents.

Example: One debtor in Texas had 400,000 Amex points. The trustee asked them to cash out at 1 cent per point as a statement credit - poof, $4,000 into the bankruptcy estate. Amex happily obliged. Brutal, but legal.

Airlines and Hotels: Switzerland in the War

Airlines don’t like to get involved in divorces, estates, or bankruptcies. They want loyalty, not subpoenas. So when points are already in an airline or hotel program, they usually play neutral.

That means if your United account has 300,000 miles, the bankruptcy trustee would need to argue that those miles are a “transferable, monetizable asset.” Most don’t bother. There’s no clear resale mechanism, and airlines technically prohibit the transfer of points for value.

But that doesn’t mean you’re safe. Airlines have their own lawyers, and if they see suspicious activity (like you draining your account right before filing), they can freeze it under “fraud prevention.” You thought you were being clever booking a last-minute Emirates First redemption before filing? United can claw back those miles, cancel your ticket, and leave you explaining to the bankruptcy court why you tried to play games.

The Business Owner Angle

For small business owners, bankruptcy and points are a whole different monster.

Say your plumbing company spends $1 million annually on a Chase Ink card. You’ve racked up 1.5 million points. Business is now underwater. You file Chapter 11. The bank doesn’t just see “loyalty points.” They see a corporate perk tied to a corporate liability. Guess what happens? Those points get zeroed out faster than you can say “Hyatt suite.”

But if you had transferred them strategically before the collapse, they’d be sitting in airline or hotel programs, where creditors can’t touch them. That’s the quiet playbook many business owners miss.

Even nastier: in partnership dissolutions, partners sometimes siphon points out of business accounts pre-bankruptcy. Suddenly, 1 million points vanish to a “work trip” or “employee incentive.” The other partners have no legal recourse because those points were never listed as cash on the books. Petty, savage, and completely legal in many cases.

Real-Life Anecdotes (Because Humans Are Petty)

1. The Vegas Vanish: A California couple filed joint bankruptcy. Two weeks before filing, one spouse transferred 300,000 Amex points into Delta, then booked a family Vegas trip. The trustee shrugged: “Points aren’t cash.” The other creditors? Furious.
2. The $10K Statement Credit: A business owner in Florida had 1 million Membership Rewards. The trustee demanded liquidation. Amex cut a $10K credit against his balance, wiping out the points instantly. He lost the business and his retirement trip.
3. The Silent Survivor: One guy with Citi ThankYou points transferred everything to Avianca LifeMiles six months before filing. Creditors couldn’t touch them. He later bragged he flew business class to Madrid while his bankruptcy case was still pending. Cold-blooded, but effective.

The Petty Playbook: How People Try to Game the System

• The Pre-Transfer: Moving points to airlines before filing. Risky if the trustee digs, but usually ignored.
• The Burner Redemption: Booking last-minute flights or hotels just before paperwork. If caught, you’ll look shady.
• The Family Dump: Transferring points to relatives “as a gift.” Technically fraud if it’s close to filing - but enforcement is rare.
• The Cash-Out Trick: Redeeming points for gift cards or statement credits, then listing them as spent. Dangerous but common.

Trustees call this “asset concealment.” Debtors call it “survival.”

What the Law Actually Says

Unlike divorce, where some states treat points as community property, bankruptcy law has no consistent rule for loyalty rewards. Federal courts have ruled both ways: sometimes they’re an asset of the estate, sometimes they’re considered “non-transferable perks.”

The gray zone benefits debtors. Unless you’ve been sloppy (or your points are tied directly to a delinquent card) the system often lets them slide.

But here’s the key: once you file, do not redeem or transfer points without approval. That’s when trustees get suspicious. If they catch you moving points post-filing, they can reopen your case, seize assets, and even charge you with fraud.

The Strategy for Survival

So what do you do if bankruptcy looms?

1. Audit Everything: Know exactly what you have - every bank, airline, hotel, and credit card.
2. Move Smart, Move Early: If you’re going to transfer out of a bank ecosystem, do it well before filing. Months, not days.
3. Value Honestly: When you disclose assets, assign a conservative cash value. Don’t lowball, don’t lie.
4. Pick Your Battles: Some points aren’t worth fighting for. Focus on transferable currencies with high upside.
5. Don’t Get Cute: Trustees may not care about your points - until they think you’re hiding something. Then it gets ugly.

Why It Matters

Because bankruptcy is already brutal. Losing your credit score, your business, or your house is bad enough. Watching your $20,000 stash of transferable points vanish at the same time? That’s pain layered on pain.

And yet, most people never even think to ask about points. Lawyers don’t bring it up. Courts don’t value it. Banks quietly make their own rules. That ignorance is expensive.

Final Thoughts: The Last Perk Standing

Bankruptcy doesn’t always mean your points are gone. Sometimes they’re the only thing left standing - a weird, gray-market lifeboat while everything else sinks.

Handled smartly, points can survive bankruptcy and become your one escape hatch: the trip that gives you a reset, the flights that let you rebuild, the hotel nights that soften the blow. Handled poorly, they vanish overnight, wiped out by the same fine print that erased your debt.

The lesson is simple: points are not fluff. They’re assets with real value. In divorce, in death, and yes - even in bankruptcy. If you’re not treating them as such, you’re leaving money on the table. And if you are? You might just find yourself sipping champagne in business class while your creditors fight over the scraps you left behind.

That’s the Bankruptcy Bonus.