There was a time when businesses didn’t reward their customers with points, rewards, or whatever they call them, but nowadays the typical American with any amount of purchasing power knows how they work and has probably amassed them. The question is whether the trustee can claim that they’re assets in a New York bankruptcy—or more fundamentally, whether a debtor should list them on the bankruptcy schedules at all.
The answer is that it largely depends on their value, but usually they don’t matter in bankruptcy. In many cases they’re not the debtor’s property, or anyone’s for that matter.
Starting with gift certificates, these might be the most problematic. They have a clear cash value, but usually they’re so trivial that they aren’t worth anything to any creditor. Debtors who might have large numbers of them might have issues, but that’s rare, yet it’s certainly going to raise eyebrows when debtors pour their cash into gift certificates before a bankruptcy. (There are stories of people buying thousands of dollars in gift certificates to purchase a big ticket item that a retailer won’t allow to be bought with a credit card.) If you have gift certificates, it’s okay to hang on to them through the bankruptcy or use them beforehand. The money has already been spent.
As for most points or rewards programs, it depends on the creditor. Oftentimes the business will require them to be used in a purchase of its own products, so it’s hard to argue it’s an asset. Dollar rewards from a credit card are a different matter. These have a real dollar value, they’re fairly liquid, but most likely the debtor will probably owe money to the bank offering holding the reward dollars. In these circumstances, debtors should spend the points before filing, if possible, in case the bank freezes them.
Frequent flyer miles, hotel points, and the like are probably not assets in bankruptcy either. It wouldn’t hurt to use them up before filing, but that might lead to other issues like excessive luxury purchases that indicate bankruptcy fraud. Usually, though, airlines and related businesses spell out that the points aren’t something the holder owns, don’t have monetary value, can’t be alienated, or lose their value in a consumer bankruptcy. The lawyers who write these agreements very carefully to avoid dealing with any of their customers’ problems that don’t relate to their businesses. (And even then…) Generally, these are safe.
Sometimes corporate executives lose their jobs, file bankruptcy, and live off their perks until they get back on their feet, but for most debtors, they won’t have enough value to the trustee or they can’t be liquidated.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced landlords rights in bankruptcy Bruce Weiner for a free initial consultation.