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Getting a Refund After an Airline Goes Under

by , SmarterTravel Staff
Credit card on keyboard (Photo: Index Open)
Editor's Note: This story was originally published on August 26, 2008. To see the most recent SmarterTravel articles on related topics, please click on any of the following links: airfare, bankruptcy, credit card, government regulation, Molly Feltner, PayPal.

When an airline goes completely kaput—not just filing for Chapter 11 bankruptcy protection but Chapter 7 liquidation—it stops dealing with customers entirely. In order to get a refund, you'll have to go through another channel, and you have the best chance of getting one if you booked with a credit card. Under the Fair Credit Billing Act (FCBA), credit card users are entitled to a refund when an airline fails—subject to a few conditions.

First, you must contact your credit card company and dispute the charge in writing within 60 days of the charge appearing on your statement. Technically, you are not entitled to a refund if you purchased your ticket further in advance and the carrier falls apart. Second, according to FCBA rules, you can only get a refund if you "have made the purchase … in your home state or within 100 miles of your current billing address." The rule doesn't detail how this relates to online purchases (how do they really know where you logged on?), but stingy card representatives might use this as an excuse if possible.

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You're also entitled to FCBA protection if you paid using a PayPal account linked to a credit card. However, if your PayPal account is linked to a bank account, essentially making it a debit card, you are not covered. PayPal was not a purchase option for any of the airlines that went under this year, so the company has not yet had to deal with this problem. A PayPal representative I spoke with said that should any of the six carriers it works with go under, they will handle refunds on a case-by-case basis.

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