What does bankruptcy mean for your rewards credit card?

Many credit cards come with some nice perks. Maybe it’s cashback, a great deal on airline miles, or tons of travel points. If you’ve spent years accumulating those rewards, the thought of losing them can be upsetting.

Filing for bankruptcy throws the future of those rewards points into uncertainty. Here’s what you should know about what bankruptcy means for your credit card rewards, and your best shot for keeping them.

Will you lose your credit card rewards?

In short: It’s very likely. When you file for bankruptcy, generally all your cards will be closed and you won’t have access to credit. Even if you have a card with no balance at the time of the bankruptcy, and you don’t list it on your petition, the issuer is still likely to find out about your bankruptcy and close your card.

Credit card issuers monitor bankruptcy filings and compare them to their customer bases. So even if you don’t report your account with zero balance, if it’s matched to a bankruptcy case, it will very likely be cancelled. So don’t rely on keeping a credit card (or its rewards) even if you’re not carrying a balance on it.

Once your account is in default, which happens when you file a bankruptcy petition, your points will be frozen. There’s a good chance, though, that you’ll lose access to those rewards even before you file a petition. Most credit card companies have policies that suspend, and sometimes even cancel, access to your rewards if you haven’t been making payments.

What about hotel and airline rewards?

Your best shot for keeping your rewards is if your credit card is with a hotel or airline. Since the credit card issuer isn’t the only one involved in the rewards program, you may still be able to hang onto those points if you transfer them to the hotel or airline loyalty program. If this is the case, try to transfer these points before you file for bankruptcy, and be sure to check with the relevant airline or hotel if you have questions.

If you’re worried about losing access to credit, just keep in mind that it’s not forever. “You’ll get swamped with credit card offers after you file for bankruptcy,” says bankruptcy attorney Robert Haupt. Bankruptcy is a clean slate — it improves your ability to pay your bills, and that’s attractive to credit card companies. (Editor’s note: Be wary of offers with high fees and interest rates, especially if your finances are still tight and running up a balance could jeopardize your ability to pay off the card each month.) With careful spending and time, you’ll qualify for rewards credit cards again soon.

Do credit card rewards count as assets?

When you file for bankruptcy, you have to list all of your debts and your assets. So does that go for travel miles and rewards points, too? There’s no clear cut answer, Haupt says. Experts disagree on whether these points or miles have real value. On the other hand, some think it’s better to be safe than sorry. Since you could benefit from using these points, they might be considered an asset.

“The IRS hasn’t been aggressive with points in the past, but if you have ones that have economic value, the trustees could take them,” Haupt says. “I’ve seen people with a couple million airline points, and that might get someone’s attention.”

One thing is clear: If you use those reward points before bankruptcy and use them for gift cards or other goods, these are certainly assets and must be listed on your petition, Haupt says.

What’s the best way to keep them?

The fate of credit card rewards when the holder goes into bankruptcy is unclear. There’s a chance you may be able to keep them, and there’s also a chance your card could be frozen and your earned points and rewards cancelled. Your best bet?

“Use them up. Spend them,” says Haupt.

That’s right: This is a case of “‘use it or lose it.” As long as you’ve come by your points in good faith, you’re certainly allowed to spend them — and that might be the best way to ensure you’ll be able to use them. “You can’t incur debt with the intent of not paying, that’s fraud,” says Haupt. “And you can’t lie. But if you have an asset and spend it legitimately, that’s appropriate.”

Keep in mind, though, that if you’re behind on your payments, you may already have lost access to your rewards unless you pay what you owe.

But if you’re in the clear, and have enough points to cash in on a ticket or hotel stay, do it before you file for bankruptcy. It’s the only surefire way to be sure that you won’t lose them.