Airline Bankruptcy: What It Means for Your Flight and Refunds

Written By Joanna Teljeur

8 minutes read
Last Updated: 16 April 2025

Over the last 15 years, 27 airlines have filed for bankruptcy. The most recent was Silver Airways that filed in December 2024, just a month after the largest ultra-low-cost airline, Spirit, filed for Chapter 11 bankruptcy in November of last year.

For passengers, airline bankruptcies can create a whirlwind of confusion, with last minute cancellations and no clear path for getting refunds or even a rebooking.

With airlines going bust more often, it’s important to understand your passenger rights ahead of time. In this guide, we’ll explain your rights, airline bankruptcy policies in different parts of the world, and what you can do to get your money back.

What Does it Mean When an Airline Goes Bankrupt?

Airlines will file for bankruptcy if they do not have enough money to pay what they owe, but that doesn’t necessarily mean they will stop operations or fail to issue refunds or compensation. In fact, many airlines will try to keep flights operating as usual, but sometimes a carrier will simply stop operations altogether. When this happens, they go out of business via a liquidation process.

Possible scenarios when an airline declares bankruptcy

• Reorganization (known as Chapter 11 in the US): The airline continues operating flights while they restructure the business, but the status of future flights is unclear.
• Complete shutdown (liquidation or Chapter 7): When this happens, flights are immediately canceled, employees are laid off, and the airline stops business altogether.

If your travel plans are affected by an airline bankruptcy, you can choose your course of action based on where you’re traveling.

Airline Bankruptcy Rights in the United States

The US has no rules or protections for passengers whose flights were canceled because of bankruptcy. So, while you might be entitled to a full ticket refund or a rebooking in normal circumstances, there’s a good chance you won’t get these from a bankrupt airline, especially one that has completely ceased operations.

If the airline filed Chapter 11, there’s a chance you could get a refund or a rebooking, but again, in the United States, there is no guarantee.

Airline Bankruptcy Rights in the United Kingdom (UK)

If you’re traveling in the UK, your passenger rights are protected by Regulation UK261, which requires airlines departing from UK or EU airports to compensate passengers for flight disruptions. These rules still apply if an airline files for bankruptcy, as long as they are still in operation. 

If the airline has stopped operations, then you will be protected by Section 75 of the Consumer Credit Act and the Air Travel Organizer’s License (ATOL), if you booked your flight through a package holiday company. 

Section 75

If you booked your flight directly with the airline, you can get some protection through Section 75 of the Consumer Credit Act of 1974. It states that if you purchased a flight with a credit card and the ticket price was between £100 and £30,000, the credit card provider will give you a full refund if the airline files for bankruptcy.

Note: Section 75 does not apply to purchases made with debit cards or to flights arranged through travel agents and agencies.

ATOL

ATOL is a financial protection program that helps passengers whose flights have been canceled by a bankrupt airline. It only applies to passengers with bookings arranged with UK-licensed tour operators.

If you are traveling internationally, ATOL will help you with a return flight back to the UK. If you haven’t started your journey but your flight was canceled, ATOL will get you a refund for your flight.

Airline Bankruptcy Rights in the European Union (EU)

Normally, air passenger rights are protected by EU Regulation EU261, which requires airlines to compensate passengers for qualifying flight delays and cancellations. These rules also force airlines to provide refunds for flights canceled within 2 weeks of departure.

However, if you purchase a flight directly with the airline, and it was canceled because of an insolvency or bankruptcy, you would not be given a refund or compensation because these situations are seen as extraordinary circumstances.

If you bought your ticket as part of a package holiday, then your rights are protected by the EU Package Travel Directive. This means you’re entitled to a refund or a rebooking with a different airline.

Rebooking & Refunds during Airline Bankruptcy

So, what do you do if your flight is canceled because of an airline bankruptcy? If you are traveling in the US or if you purchased your flight directly from the airline in the UK or EU, you can try the following options to get a rebooked flight.

Rebooking Options

1. You can get a rebooking through your travel insurance, as long as you have a policy that covers airline bankruptcy, but check your policy beforehand because this isn’t always included. 
2. Check for rescue fares (or distress fares). These are discounted fares offered by other airlines to help stranded passengers. You can find them by checking the bankrupt airline’s website, social media, or even travel blogs for information on which airlines are offering rescue fares.
3. Purchase a new flight out-of-pocket. You can also request a credit card chargeback if you purchased your flight with a credit card, which will help cover the extra cost.

Refund Options

Getting a refund from a bankrupt airline is a little bit more complicated, and your options depend on where you’re traveling.

In the US, you can file a credit card chargeback, as long as you used a credit card to buy your ticket. You can also check with your travel insurance policy to see if it covers financial default coverage. If all else fails, you can also try filing a claim in bankruptcy court as an unsecured creditor.

In the UK, you can get a full ticket refund through ATOL if your flight was part of a package holiday. If you purchased your flight directly from the airline, you can request a credit card chargeback under Section 75 of the Consumer Credit Act. Finally, you can get a refund through your travel insurance if your policy includes Scheduled Airline Failure Insurance (SAFI).

Expert Tip: "If you book directly with a credit card, you may be entitled to a chargeback or Section 75 protection if the airline goes bankrupt. This gives passengers an extra layer of protection, especially if the airline isn’t part of a package holiday scheme." - Anton Radchenko, International Lawyer at AirAdvisor.

In the EU, you can get a refund if you booked your flight as part of a package holiday, but if you booked your flight directly from the airline then you can request a chargeback, provided you used a credit card to buy your flight. Lastly, you can also try your travel insurance, but the policy must include Scheduled Airline Failure or financial default coverage.

Had a Delayed or Canceled Flight to or from the EU?You might have a right to compensation - up to $650.Check Your Flight

Real Examples of Airline Bankruptcies

To put all this in context, let’s look at a few cases where airlines filed bankruptcy and how passengers were affected.

Thomas Cook Airlines

In 2019, British airline and travel agency Thomas Cook went bankrupt and collapsed into liquidation. All flight operations were stopped, affecting roughly 600,000 passengers worldwide.

Around 150,000 UK travelers were stranded abroad and had to be brought home by the UK government and CAA in a repatriation program called Operation Matterhorn.

Thanks to the ATOL Refund Scheme, approximately 360,000 passengers were entitled to full ticket refunds, processed by the UK Civil Aviation Authority. It was the largest refund payout ever handled by ATOL, but none the less, most claims were processed within 3 months.

Passengers who purchased flights directly from the airline were not covered by ATOL. As a result, these passengers had to seek refunds through credit card chargebacks and travel insurance claims.

WOW Air

Also in 2019, Icelandic budget airline, WOW Air stopped flight operations, which left around 10,000 travelers stranded in countries around the world. At the same time, tens of thousands of travelers had their future flights canceled.

The airline did not rebook stranded passengers on flights with other airlines, leaving them to find and pay for flights on their own. The Icelandic government did not help bring stranded passengers home, but fortunately, Icelandair, Norwegian Air, Wizz, and Virgin Atlantic were among the airlines who offered rescue fares to passengers.

To get refunded, WOW passengers were advised to request credit card chargebacks and to file travel insurance claims, but not all passengers had Scheduled Airline Failure Insurance. Because of this, it’s unclear how many travelers actually received a refund.

Eastern Airlines

Way back in 1991, Eastern Airlines stopped operations and left numerous passengers stranded away from home and others with canceled tickets. The airline began working with other carriers to honor those with existing tickets, but many travelers had to purchase new tickets to get back home. 

Eastern Airlines also promised refunds to anyone whose flights were canceled. At that time, refunds were not automatic, and passengers had to file a claim to get their refund. But, when the bankruptcy proceedings began, Eastern Airlines passengers became unsecured creditors, which meant that there was no guarantee they would ever be refunded.

Passengers who paid with a credit card were forced to initiate disputes with the credit card companies, while others turned to their travel insurance to recoup the cost of their unused ticket.

Protect Yourself against Airline Bankruptcy

Hopefully,  you’ll never have to contend with an airline bankruptcy situation,  but there are a few things you can do to prepare in case it happens to you.

1. Purchase your flight with a credit card. Most passengers pay with a card of some sort, but if possible, use a credit card instead of a debit card. If airline operations cease, you can always file a chargeback to recoup the cost of your unused ticket. 
2. Consider booking package holidays if you’re traveling in the UK or EU. You’ll have more protections if your carrier goes bankrupt.
3. Get travel insurance, and be sure the policy includes Scheduled Airline Failure Insurance (SAF) or financial failure insurance. 
4. Check the carrier's financial health. Some warning signs of a possible bankruptcy can include information about unpaid staff, suspended stock trading and regular cancellations and changes to flight schedules.
5. Keep all documents related to your trip, like correspondence from the airline, booking receipts, etc. You’ll need these to claim a chargeback or to file a travel insurance claim.

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