What happens when a tour company goes out of business?

Godefroy
Jun 17
4 min read

When a tour company declares bankruptcy or ceases operations, travelers often find themselves in a precarious situation, potentially losing their vacation plans and money. However, various protections exist depending on your location, how you paid, and what type of travel you booked. Understanding these rights can help you recover your funds or continue with your travel plans.

Package Holiday Protections

ATOL Protection (UK and Europe)

The Air Travel Organisers' Licence (ATOL) is a financial protection scheme run by the Civil Aviation Authority (CAA) in the UK that safeguards travelers who have booked package holidays1. If you've booked a package holiday with an ATOL-protected company that goes bankrupt:

You'll receive a full refund if you haven't yet traveled1 2
If you're already abroad, you'll be able to complete your holiday and be flown home at no extra cost1 2
Your accommodation costs will be covered until repatriation if necessary3

ATOL protection applies to package holidays and charter flights sold by tour operators in the UK, and you should receive an ATOL certificate when booking that serves as proof of this protection1 2.

European Travel Directive

The European Union has established robust consumer protection through the Package Travel Directive, which applies to all 27 member states4 5. Under this directive:

Tour operators must have insolvency protection in place5
This protection covers refunds and repatriation if the organizer goes bankrupt5
The protection applies to both traditional packages and linked travel arrangements (where you book different elements through connected processes)5

Payment Method Protections

Credit Card Purchases

One of the most effective ways to protect yourself when booking travel is to pay with a credit card:

Credit card purchases are protected under consumer protection laws in many countries, allowing you to dispute charges for services not received6 7
You can request a chargeback from your credit card company if a travel provider becomes insolvent before providing the service you paid for8 9
Time limits apply for filing a chargeback claim, typically within 60 days of the charge appearing on your statement9

Debit Cards and Bank Transfers

Payments made via debit cards or bank transfers generally offer less protection:

Bank transfers are deliberately made by you and usually cannot be reversed in case of insolvency8
Your only recourse may be to file a claim during bankruptcy proceedings, which often results in minimal or no recovery6 8

Travel Insurance Options

Financial Default Coverage

Some travel insurance policies offer protection against supplier financial default:

This coverage reimburses you if a travel supplier with whom you've booked stops business operations due to financial reasons10
It typically covers airlines, cruise lines, and tour companies, but may exclude travel agencies10
Financial default coverage is usually a time-sensitive benefit, meaning you must purchase your travel insurance within a specified period (typically 10-14 days) after making your initial trip payment10
Most standard travel insurance policies do not cover insolvency, so you need to specifically look for policies that include this protection7

Regional Protection Schemes

Travel Assurance Fund (Canada)

In British Columbia, Canada, the Travel Assurance Fund provides possible compensation for consumers who didn't receive travel services purchased through a licensed travel agent11 12:

Claims must be filed within six months from the date the travel services weren't provided12
The fund is considered a "fund of last resort," meaning you must first attempt other avenues for refunds13
To be eligible, you must have booked with a licensed BC travel agent or wholesaler13

Consumer Protections in the United States

The United States has fewer federal protections compared to Europe:

There are no federal laws requiring suppliers to escrow or insure consumer payments4
U.S. travel companies are not legally prevented from using pre-trip customer funds as working capital4
Protection varies by state, with some states having more robust consumer protection laws than others4

Steps to Take If Your Tour Company Goes Bankrupt

Document everything: Keep all receipts, booking confirmations, and communications with the tour company6 11
Contact your payment provider: If you paid by credit card, contact your card issuer immediately to initiate a chargeback6 7
Check your travel insurance: Determine if your policy includes financial default coverage7 10
Verify protection schemes: Check if your booking is covered by ATOL, ABTA, or other regional protection schemes1 2
Contact the insolvency insurer: If your tour operator had insolvency insurance, contact them directly using the details in your travel contract3
Explore alternative arrangements: If you're already traveling, contact airlines, hotels, and other service providers directly to confirm your reservations11
File claims promptly: Be aware of time limits for filing claims with protection schemes, typically within six months11 1

Prevention Strategies for Future Bookings

To protect yourself when booking future travel:

Always pay with a credit card rather than debit card or bank transfer6 7
Purchase comprehensive travel insurance that specifically includes supplier financial default coverage7 10
Book with reputable companies that have financial protection schemes in place7
Consider booking package holidays that come with legal protections rather than arranging components separately1 5
Verify that your tour operator has appropriate insolvency protection before booking6 14

Conclusion

While the collapse of a tour company can be distressing, understanding your rights and the protections available can help you recover your funds or continue your travel plans. The level of protection varies significantly by region, with European travelers generally enjoying more robust safeguards than those in other parts of the world4 5. By taking preventive measures like paying with credit cards and purchasing appropriate travel insurance, you can minimize your risk when booking future travel arrangements6 7 10.