Many cards come with some sort of “rewards” program attached to them. There are cards that collect points that you can redeem for products and services, air miles on travel cards, there are even cards that give you a cash rebate once a year. What happens to these credit card rewards if you file for bankruptcy or a consumer proposal in Canada?
There are two issues at play here when determining what happens to rewards accumulated on your credit card before you filed:
- the right of set-off
- the concept of ‘value’
From a purely technical standpoint, if the rewards have “value” they become something that is supposed to be seized and converted into cash when you file for bankruptcy.
When you file bankruptcy or a proposal, you are required to turn over your credit cards to your trustee. In addition, your credit cards will be cancelled by the issuing company.
If there are outstanding points or rewards on your card at the time of filing, your credit card issuer will use a legal concept called “the right to set-off’ to cancel your rewards. The right of set-off allows them to apply a positive balance in one account (for example your rewards account) against another account with a negative balance (your credit card debt). In this way, they simply cancel the rewards.
There are points programs where you receive a specific points card. These may or may not be tied to a credit card, but provide you with points every time you make purchases whether you pay cash or use credit. An example could be Air Miles Rewards or your grocery store rewards program. Some of these programs will allow you to convert your points into gift cards which you can then spend like cash. Because the program is not operated by your credit card issuer, there is no right of offset. That means you may be able to continue to use the points card and have access to the points you have already accumulated.
This leads us to the second principal. What has ‘value’. These types of points programs typically do not return significant prizes and it would be quite difficult for the trustee to turn these ‘assets’ into realizable value for the creditors. So while technically they are an asset of the estate, practically your trustee is likely not going to do anything about them unless they are substantial.
The best advice would be to use whatever rewards or points your have accumulated on either a credit card or a points card before filing bankruptcy or a consumer proposal – just to be sure.