What happens to frequent flier miles when an airline files for bankruptcy?

New stories about failing airlines and federal bailouts have some frequent flyers feeling the skies aren't so friendly. Incentive programs from airlines, like earning miles from credit card purchases, have many Americans swiping plastic in the hopes of saving up for that dream vacation. But what happens when an airline files for Chapter 11 bankruptcy? Will your frequent flyer miles evaporate into thin air?

First of all, Chapter 11 does not guarantee the airline is going under. Companies often file Chapter 11 to reorganize debts and renegotiate agreements with creditors and labor unions. In fact, many companies continue to operate as before. Fears about losing frequent flyer miles on a bankrupt airline may be exaggerated since companies do emerge from bankruptcy with financial health. The next scenario is more common. An airline may decide to alter the terms of the frequent flyer program. This might mean imposing more black-out dates or increasing the number of miles needed for a free ticket.

While there isn't insurance to protect the value of your miles, there are options if your award program gets scrapped. Companies like points.com or MilePoint.com will allow you to exchange your miles for goods or services.

While there isn't insurance to protect the value of your frequent flier miles, there are options if your award program gets scrapped. Companies like points.com or MilePoint.com will allow you to exchange your miles for goods or services. You can also hurry up and use those miles if you're afraid your program is on the verge of extinction. Don't have enough miles to take that trip? Don't worry. You can buy miles at miles4sale.com. On the flipside, you can sell miles at awardtraveler.com or donate them at miledonor.com.

Whatever you decide to do with your unused frequent flier miles, remember that miles are not like money in the bank. Airlines can change the terms of their award programs at any time. After all, the value of an unused frequent flyer ticket is $0. Post 9-11 Congress gave travelers some protection for tickets that were purchased or obtained with mileage points. The Aviation and Transportation Security Act allows passengers holding tickets on obsolete airlines to fly standby on another U.S.-based airline. There are two main requirements: a $25 fee and flying within 60 days of the airline going belly up. While this law is due to expire in November 2004, Congress may extend it. Just remember frequent flyer options in the face of bankruptcy are nearly as boundless as dream vacation destinations, so whether it's Hawaii or Fiji, sit back and enjoy the ride.