Chargeback: Get Your Money Back When a Company Goes Bankrupt (Update: Travel-Agencies)

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Through a chargeback you can get your money back if an airline/travel agency/hotel… goes bankrupt before providing the service that you paid for. A chargeback can also be helpful in the case of a cancellation made by the airline, if the airline refuses to refund the money and only offers a voucher instead. The prerequisite for a chargeback is to have paid with a credit card.


You’ve booked your next vacation and are already looking forward to the trip. But just while you’re packing our bags, you receive the bad news: the hotel, airline, or travel agency filed for bankruptcy. No further services will be offered.

That’s the situation many travelers have been confronted with when Thomas Cook announced that they would go out of business due to financial troubles. And no one knows if and when this occurs again. So how can you brace yourself for such an incident?

Sure, in the event of insolvency, the customer is the one left with an egg on his face. Money is lost, the flight or trip will not take place, and you have to look for an alternative yourself and might even be forced to pay twice. Now, you could register your claims as soon as the whole process of insolvency has started. Technically, this will give you a chance to get your money back. But in practice, it is improbable that you will be compensated with only a fraction of what you’ve paid.

Luckily, there is a better alternative: Chargebacks. This system allows you to get your money back if you’ve paid for a service that you’ve never received. The prerequisite is that you’ve used a credit card as a method of payment. Recent insolvencies, such as the one of Air Berlin or Germania, have shown that your best chances for a refund the so-called chargeback.


The massive amount of cancellations during the Coronavirus crisis have lead to many airlines refusing to offer their customers a refund after cancelling their flight, even though the EU’s laws state that such a refund has to take place within 7 days. Most airlines even state a full refund in case they cancel the flight in their conditions.

If the airline refuses to refund and instead only offers a rebooking or voucher, you can get the money back into your bank account with a chargeback, without having to sue the airline. T do this, you first have to try to get the money back from the airline. If the airline clearly refuses, you can ask your bank to perform a chargeback.

How Does a Chargeback Work?

Initially, chargeback was invented to protect customers from credit card fraud. The financial institutions wanted to offer a way for customers to get their money back in case of unauthorized charges to their card. But it can also be used if a company doesn’t provide the service that one paid for.

If you use a credit card to pay for goods or services, there are up to 5 parties involved in the process. It’s obvious that two of them are you and the merchant. But there are more:

  1. The Issuer: a financial institution that provides the credit card and grants you the line of credit. Typically the customer’s bank.
  2. Payment service provider: a network that is needed to actually conduct the payment and make infrastructure such as credit card terminals available. The of the famous ones are Visa and Mastercard.
  3. The Acquirer: a bank that receives the money and forwards it to the merchant’s account.

So, if you request a chargeback with your bank (1) a case will be opened by the credit card network (2). As a consequence of this, the merchant’s bank (3) will be asked to provide further information that will clarify the circumstances. Now the merchant has the chance to present proof that the transaction was actually legit. This could be a receipt signed by the customer. Or the confirmation from an airline that the flight has actually taken place. Depending on the evidence the merchant can produce, the credit card network (2) will decide if the chargeback is justified or not.

By the way: if you hold an American Express card, the process will be slightly different. As a customer, you will most likely not be able to notice. But since American Express is the issuer (1) and the payment service provider (2), the whole procedure is somehow streamlined.

Where Will the Money Payed Back Come From?

In case of doubt, the merchant’s bank will be liable for unjustified payments. Therefore, the bank is naturally anxious to work only with reputable traders. If, for example, a trader has a too high chargeback rate, he must expect a fine or will even have his account blocked.

In addition, the merchant’s bank always holds back parts (often 5-15%) of the payments, the so-called rolling reserve. This is done to settle possible chargeback claims. It is not uncommon for a merchant’s bank to demand significantly more security from an airline or tour operator with financial problems. Compared to a merchant that has been running a profitable business for years. Of course, this always depends on the bank’s risk management.

Usually, the bank collects the receivables from a chargeback, including a fee, from the merchant. If, however, the seller can no longer provide the services because he has filed for insolvency, the bank is liable for all outstanding claims. The merchant’s bank then has the option of presenting its own demands. Nevertheless, the consumer must be compensated immediately.

Therefore you don’t have to worry about someone taking money out of an insolvent enterprise wrongly. This is not the case and would be illegal as well.

Chargeback in the Case of an Insolvency

Credit card networks such as Visa or Mastercard have clearly defined rules as to when a chargeback is possible. You’ll find the Mastercard Chargeback Guide, which is over 400 pages long, online. Visa will also have such a guide, but, unfortunately, it is not available as easy as the one Mastercard published.

Rules on how to proceed if a service has not been provided can be found on page 49 of the Mastercard Chargeback Guide, according to which a chargeback can be carried out. It even explicitly deals with travel services, tour operators, and travel agencies:

Goods or Services Not Provided

Chargeback Condition. One of the following:

– The cardholder contacted the issuer claiming both of the following:
– – The cardholder engaged in the transaction.
– – The purchased goods or services were not received.
– Travel services arranged through an online travel agency or tour operator were not received and the travel agency or tour operator is no longer in business.

Mastercard Chargeback Guide Page 58

According to the rules, it is sufficient that the tour operator or the travel agency that arranged the travel service (e.g., a flight, hotel, package tour…) has ceased operations. This, of course, is applicable in case of insolvency.


A chargeback can only be performed within a limited time frame. The clock starts ticking as soon as a transaction has been completed. Or once a product has been delivered. However, Mastercard has clearly defined the last expected service date (usually the time of departure or landing of the return flight). From there on, Mastercard allows at least 120 days to initiate a chargeback:

Time Frame

One of the following:

1. Maximum 150 calendar days from the latest expected service date, whether the bonding authority or similar scheme responded or not. The issuer must wait at least 30 calendar days from the date the request was sent prior to processing a chargeback, unless a negative response was received, in which case, the chargeback may be processed upon receipt of the negative reply.
The following exceptions apply:
–  For German Domestic Transactions: Maximum 240 calendar days from the latest expected service date, whether the bonding authority or similar scheme responded or not. The issuermust wait at least 60 calendar days from the date the request was sent prior to processing achargeback, unless a negative response was received, in which case, the chargeback may be processed upon receipt of the negative reply.
– For Polish Domestic Transactions: Maximum 540 calendar days from the Central Site Business Date, whether the bonding authority or similar scheme responded or not. The issuer must wait at least 60 calendar days from the date the request was sent prior to processing a chargeback,unless a negative response was received, in which case, the chargeback may be processedupon receipt of the negative reply.
– For Swedish Domestic Transactions: Maximum 120 calendar days from the latest expected service date.
2. Maximum 120 calendar days after from the expected service date. In all cases, the issuer does not have to wait for the latest expected service date before processing the chargeback. A chargeback may be processed immediately upon learning the travel services will not be provided to the cardholder (or traveler). The issuer is still obliged to meet all other applicable chargeback requirements, such as a request for reimbursement from the bonding authority or similar scheme.

Mastercard Chargeback Guide page 62 – Failed Travel Merchant—Intra-EEA and Domestic European Transactions Only

The chargeback can, of course, also be carried out before the last expected service date. But it has to be that the service will no longer be provided (e.g., in the event of insolvency of the travel service provider). In which case, the chargeback may be carried out right away, and you do not have to wait for the dealer’s answer.

Secured Payment Certificate & Insurance Against Insolvency

Before a chargeback can be initiated, it must be clarified whether any insurance covers the trip. This is particularly the case for package tours with a secured payment certificate. Individual travel components, e.g., only flight, hotel, or a rental car, are usually not covered by any insurance against insolvency.

Chargeback Condition

For Intra-EEA and domestic European Transactions, when the cardholder contacted the issuer claiminga travel service has not, or will not, be provided, and when the merchant is seeking protection from creditors, insolvent, bankrupt or in liquidation, at least one of the following conditions must be met:

1. The travel service was covered by a bonding authority or similar scheme according to local law, and one of the following:
– The cardholder (or traveler) requested reimbursement from the bonding authority or similarscheme and did not receive it, or the claim was declined.
– For Swedish Domestic Transactions: no additional requirement. The cardholder (or traveler) isnot obligated to request reimbursement from a bonding authority or similar scheme prior tothe issuer raising a chargeback. The cardholder (or traveler) does not need to requestreimbursement from the bonding authority or similar scheme if the merchant, bondingauthority or similar scheme publicly states that the bond is insufficient prior to the chargeback.
2. The travel service was not covered by a bonding authority or similar scheme according to locallaw, or neither the issuer nor the cardholder after reasonable effort can determine whether the travel service was covered by a bonding authority or similar scheme according to local law.

Mastercard Chargeback Guide page 62 – Failed Travel Merchant—Intra-EEA and Domestic European Transactions Only

In the event of an insolvency of a tour operator, the secured payment certificate is intended to guarantee that the insurance company ensures the return of stranded holidaymakers. And also reimburses them for any payments made in advance. However, sometimes, those secured payment certificates seem to have a significant design flaw. In Germany, for example, the insurer is only liable for losses of up to 110 million. That might be enough to cover the damage when smaller operators file for insolvency. Not so much if market leaders such as Thomas Cook go bankrupt. Those affected will then only be compensated on a pro-rata basis.

Whether a chargeback can still be opened in such a case is unfortunately unclear. Mastercard will only approve a chargeback if the insurer has rejected the application, or the compensation has not been received. It is not clear whether a chargeback is also an option if only a fraction of the sum is reimbursed.


An application for a chargeback must be made directly to your bank. The procedure varies from bank to bank. Usually, you have to fill out a complaint form and mark a reason for your claim. In the case of American Express credit cards, an application for a complaint must be submitted directly to American Express.

Hardly every bank employee is well trained in handling chargebacks. In past insolvencies, it has happened over and over again that chargebacks got rejected by the bank employees. In this case, it is essential to remain persistent and, if necessary, point out the appropriate paragraphs of the chargeback guide.

Also, it is advisable to copy and save the application and all further communication in writing. Don’t let anybody get rid of you on the phone. This is difficult to prove later.

Not all banks the same when dealing with insolvencies. Some even consciously inform their customers about the possibilities of a chargeback.

When Booking on an OTA/Travel Agency

Many passengers don’t book directly at the airline, but instead at an online-travel agency (OTAs like Opodo, Expedia, etc.) or a local travel agency. In that case, the price is usually not charged directly by the airline, but by the travel-agency. The agency acts as a middle-man and passes on that money to the airline. Their service is completed, once they pass on the money.

If you then want to make a chargeback, the chargeback would affect the travel agency, and not the airline. The travel agency, however, has completed its service (passing on the money).

According to Mastercard, a chargeback from the travel agency is still justified because the travel agency has the responsibility to ensure that the service that they “sold” actually takes place. The travel agency could also get the money back from the airline, therefore a chargeback from a travel agency is justified.

Question: The cardholder’s flight has been cancelled and the transaction was billed by an online travel agent (OTA). The OTA tells the cardholder that they are only responsible for making the reservation and not providing the flight. Does an issuer have chargeback rights?

Answer: Yes. In these circumstances, Mastercard would view the OTA as the merchant of record, and an agent of the travel supplier, regardless of the terms and conditions disclosed to the cardholder. Under Mastercard Standards, the OTA, by accepting payment for the service purchased by the cardholder (e.g. flight) and not just for handling the reservation, assumes responsibility for chargebacks if the service is not provided. The OTA should work closely with its travel partners or travel suppliers to avoid a cardholder getting reimbursed twice for the same transaction.

Mastercard Dispute Resolution Management During COVID-19

Frequently Asked Questions

What happens if I paid by bank transfer?

Payment by bank transfer was deliberately made by you and usually cannot be reversed. In case of insolvency, there’s only one way to get some of your money back. Enter your claim during the bankruptcy. Or the secured payment certificate for package tours.

Is a chargeback possible if there’s a secured payment certificate for package tours?

Unfortunately, this is currently not clear. Actually, the insurance company that issued the certificate has to pay for the damage in the first place. However, if the amount that is covered by the insurance is not sufficient, a chargeback for a portion of your payment might be possible.

What if I paid for the trip several months ago?

In the case of travel, the time of performance is decisive for the deadline. Therefore, it is no problem if you booked a trip that has now been canceled half a year ago.

Is a chargeback also possible if I paid with direct debit?

Generally it is possible, however only for 8 weeks after your payment.

Cover Picture: © pic3d -

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Comments (3)

  1. JW says:

    Capital One is useless in this case. They sided with, who is still holding about $2K of my money.

  2. Lucy says:

    Thank you for your post! I am so worried because LATAM airlines filed for bankruptcy I believe… when the pandemic first hit, I thought I would wait it out due to the fact that my flight was for December. I had to go ahead and request a refund just recently (also one of my flight legs were cancelled), but I have read horror stories of people not receiving their refunds and it has been months… since I bought my ticket back in February with my Chase Sapphire card, could I dispute it even though I bought my tickets about 9 months ago?

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