Air Miles has been in the news a lot lately about their new points expiry policy. Maybe it's because of the media attention, but we have had a lot of potential clients ask what would happen to their Air Miles and other loyalty points if they file bankruptcy?
Here is a short summary of what would happen under bankruptcy law:
Section 67 of the Bankruptcy & Insolvency Act says that a bankrupt’s assets include “all property wherever situated at the date of the bankruptcy”.
What that means is if you own it, it's property. While there are bankruptcy exemptions for things like an inexpensive car, household goods and a portion of your RRSP, there is no exemption for Air Miles or any loyalty programs.
While that's the technical answer, practically your trustee is unlikely to attempt to realize on these points. The reason? They have little to no cashable value.
If your points are not attached to a credit card, the practical answer is you can continue to use the points. However, if your points are attached to a credit card - an example being the popular Costco cash-back program - you will likely lose these points because, as part of your bankruptcy, you will have to surrender all credit cards. Since the financial institution will cancel your card, your points will also be cancelled.
That's the short answer. For more, listen to the podcast or read the transcript below.
FULL TRANSCRIPT Show 115
This is a Technical Tidbits edition of Debt Free in 30, a shorter version of our podcast where we answer just one listener question.
Today’s question: What happens to my air miles if I go bankrupt?
I’m getting this question a lot lately because it’s a topic in the news recently, so let me answer the question, but let me also give you my thoughts on Air Miles and reward points in general.
First, the technical answer:
If you go bankrupt you lose your assets, so the question is, are Air Miles an asset?
Section 67 of the Bankruptcy & Insolvency Act says that a bankrupt’s assets include
“all property wherever situated at the date of the bankruptcy”.
In other words, if you own it, it’s property.
Of course the Bankruptcy & Insolvency Act is a legal document, written by lawyers and lawmakers, so it has lots of exceptions, and the main exceptions are any property that is otherwise exempt from seizure by the trustee.
We’ve discussed these exemptions on other podcasts, so I’ll just summarize quickly that there are many assets you don’t lose in a bankruptcy, like an inexpensive car, household goods, and part of your RRSP.
Needless to say, there is no specific exemption for Air Miles, so technically they are an asset of the estate, and as a licensed insolvency trustee I should be seizing them.
However, there is another consideration, and that’s practicality.
As the trustee there has to be a way for me to take the Air Miles and turn them into cash, otherwise they have no value.
Air Miles does have what they call a cash rewards program - if you choose the cash rewards option in your account you can redeem the cash value in store when making purchases at participating stores (for gas, groceries, movie tickets for example). What you can’t do is redeem the rewards for cash itself.
So, as a licensed insolvency trustee, I have no way to turn your Air Miles into real hard cash. I can’t take your card and go to Air Miles or a store and convert the points to cash, so they have no value in a bankruptcy.
I’m giving you an answer that applies to Air Miles. Of course there are lots of other reward programs out there, and I haven’t reviewed all of them, but the general answer is the same: if it’s possible to convert the points to cash, then, in theory, the trustee can seize the points when you go bankrupt.
But what about credit cards that give you cash back? Again, in practice, I’ve never seen a trustee seize them as an asset. To explain, let’s look at a typical example: Costco:
One of the biggest cash back programs in Canada is the Costco rewards program, where, at the end of the year, Costco gives you a cash voucher that you can spend at Costco.
But, if you go bankrupt, you surrender all of your credit cards, including your Coscto credit card, and when you do you lose all of your points, so there’s nothing to seize when you go bankrupt.
So the simple answer to the question is that, in virtually all cases, Air Miles and other reward programs have no value in a bankruptcy.
Before we close, I’d like to briefly mention the controversy surrounding Air Miles.
Back in 2011 Air Miles announced that reward miles older than 5 years old would begin to expire, so the first of those rewards will expire at the end of December, 2016.
This has upset many Air Miles collectors, because the announcement back in 2011 was very low key, so very few people heard about it. The original deal was that Air Miles never expired, so naturally collectors were upset when the deal changed.
There are now some petitions circulating on the internet to either get Air Miles to change their policy, or to get collectors to boycott the stores that offer Air Miles.
You can follow Ellen Roseman of the Toronto Star on Twitter who has been following this closely.
We discussed this issue back on Show #106, our Walmart vs. Visa show, where I mentioned the fact that credit cards cost the store money; they pay a fee to process your credit card payment.
Air Miles and other rewards are the same; it’s costs the store money to give you Air Miles points, and other rewards.
As a consumer, you have the power, so if you don’t think Air Miles is being fair, tell the stores you shop at. Tell them you would prefer that they not offer Air Miles. If a store believes they will lose customers, they’ll stop offering them, and perhaps they will be able to lower their prices in the future.
My opinion is that if it costs you nothing to collect rewards, fine.
I’m not a big fan of having a dozen different reward cards in my wallet. I like things simple, so unless it’s a place I go to all the time, I don’t carry reward cards.
Of course now a lot of these cards are available as apps on your phone, so you don’t need to carry the card, so that’s good.
My point: shop at stores with the best deals, whether or not they offer points.
And if you have points and rewards, cash them in, because you never know when they will disappear.