Here are 2 easy ways to protect yourself if your travel company goes bankrupt like Thomas Cook

Thomas Cook logos are pictured on the tailfins of the company's passenger aircraft parked on tarmac at Manchester Airport in Manchester, northern England on September 23, 2019, after the company collapsed into bankruptcy.
OLI SCARFF | AFP | Getty Images

An estimated 600,000 travelers on vacation around the world got some bad news today: Their travel company was bankrupt and they were stranded. Thomas Cook, the 178-year-old British travel company specializing in packaged vacations, ceased operations in the early hours on Monday.

The collapse of Thomas Cook stranded about 50,000 travelers in Greece, up to 30,000 in the Canary Islands in Spain, while 21,000 vacationers are left in Turkey and another 15,000 in Cyprus, ABC News reports. Not to mention the approximately 1 million travelers authorities estimate had future travel plans with the defunct company.

"Hotel chains, tour operators, airlines, and the like can and do experience financial difficulties," Erika Richter, a spokeswomen for the American Society of Travel Advisors, tells CNBC Make It. Thomas Cook isn't even the first company to halt operations this year. In March, Iceland's WOW Air encountered financial troubles, which caused the airline to abruptly cancel all of its flights, and in April, Jet Airways also halted operations.

While no one wants to think about their vacation becoming a disaster, it pays to be prepared. Here are two ways to protect yourself from having to spend big bucks if your travel company goes dark.

Source: Twenty20

Book with a credit card

The main thing travelers can do to protect themselves in the event that the airline, hotel or travel company they've booked with goes out of business is to make the reservation with a credit card, Scott Keyes, co-founder and CEO of Scott's Cheap Flights, tells CNBC Make It.

"Many credit cards automatically carry travel insurance and protections to provide compensation if your trip is disrupted, as long as you used that credit card to purchase your airfare," Keyes says. It's best not to use your debit card when paying for your travel plans.

Credit card purchases are protected under the federal Fair Credit Billing Act, which grants consumers the right to dispute a charge when service is not provided. Generally you have about 60 days to file a complaint. "Customers making payment for travel that does not — or will not — take place because the supplier has ceased operating should immediately dispute the charge," Richter says. Even if the customer has already paid the charge, or if the 60-day period has passed, it is still advisable to request a credit.

Ritcher also recommends that you avoid making a deposit using cash or check, as federal safeguards will not apply in these cases.

If the travel company that went out of business, such as an airline, isn't being cooperative with refunding your ticket or providing alternate transport, you can contest the charge directly with your credit card company. "The bank will typically erase your purchase so you're not liable and then go to bat [directly] with the defunct airline to recoup the lost money," Keyes says.

Source: Twenty20

Purchase travel insurance

If you really want to protect yourself when planning a vacation you should consider purchasing comprehensive travel insurance. While booking with a credit card will allow you to get your money back if your travel company ceases operations, travel insurance, depending on the policy, will reimburse you if you need to pay for additional flights or hotels if you're stranded.

These insurance policies typically cover everything from reimbursements if you miss a connection to refunds if you can't travel because you're sick or hurt, plus any expenses related to lost bags, medical or dental emergencies, disaster evacuations and even costs associated with accidental deaths.

But before you pay for extra insurance, check your wallet. Some credit cards actually offer forms of travel insurance as a perk. For example, the Chase Sapphire Preferred credit card offers built-in trip interruption insurance that reimburses up to $10,000 per person if your trip is cancelled or cut short because of situations such as an illness or severe weather.

These policies may not be as comprehensive as stand-alone travel insurance, but they may cover the big-ticket items like a hotel and airfare if something should happen.

Comprehensive trip insurance can be expensive. You can expect to spend an average of $164 for a week-long trip, according to finance research site ValuePenguin that looked at the top 50 offerings on the market. In many cases, travel insurance policies will include financial default coverage, so you can "be made whole" if a hotel or airline, for example, is unable to provide service, Ritcher says.

A tour guide introduces a group of backpackers to the beauty of Kravice Waterfalls in Bosnia.
Joel Carillet | iStock Unreleased | Getty Images

Know your rights

If you're flying to, from or within the European Union, there are extra protections you can claim under EU law. Depending on the flight distance, you can claim up to €600 ($660) for delays of more than three hours, flight cancellations, or if you are denied boarding from overbooking. "If your flight is canceled, you have have the right to reimbursement for the unused portion of the flight, re-routing or return, as well as assistance and compensation," Keyes says.

Additionally, if you're traveling using a British-based tour operator or vacation package provider, double check that you're covered by the Air Travel Organiser's License. This is a consumer protection program rolled out by the country's Civil Aviation Authority that protects travelers from being stranded or losing money if their travel agency goes bust, Alisha Prakash, senior editor at travel review site Oyster.com, tells CNBC Make It.

"ATOL-protected passengers will be given a full refund, if they haven't made the trip yet, and those who are on vacation will be able to return home," Prakash says. In fact, those affected by the Thomas Cook bankruptcy should be covered under this program. But it's important to note this program only applies to those who purchase their vacation package through a registered tour operator. If you book your flight directly with the airline, the ATOL protection is not granted.

Correction: The Citi Prestige credit card discontinued the travel insurance perks that were previously cited in this article. 

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