Yep, this topic has been discuused in many places on the web and if my memory serves, you could find a lot of answers to this stuff in www.smarterliving.com. Also, of course, in the www.frequentflier.com

Check out:
http://frequentflier.com/ff082702.htm

I doubt Tim Winship minds my pasting the entire article in here as I saw it.

You can also get some similar info on http://www.elliott.org as this too is another great source for tips and info on such subjects.

Here is Tim's piece copied from that above link:

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Bankruptcy, Liquidation Imperil Frequent Flyer Miles
What's a Worried Mileage Miser to Do?

August 27, 2002 - With US Airways in bankruptcy and United poised to follow, millions of consumers are sweating the fate of billions of unused frequent flyer miles.

United's Mileage Plus program has 41 million members, whose accumulated miles were redeemable for 11.1 million free tickets at the start of 2002. And US Airways' Dividend Miles program's 22 million members had 6.8 million awards due them.

The question on the minds of many jittery frequent flyer program members: What should I do about my miles?

Some options...


Use 'Em or (Maybe) Lose 'Em
Unlike most checking accounts, which are protected by the FDIC, or purchased air tickets, which are often honored on a space-available basis by a failed airline's competitors, there is no built-in protection for frequent flyer miles or award tickets. So if the airline which operates your frequent flyer program ceases operations, your miles and unused award tickets are at risk, and possibly -- but not necessarily -- doomed to oblivion.

There's only one sure way to protect the full value of your miles: use them now, while the airline which hosts your program is still flying.

But for many, that's simply not a viable option.


Redeem for Merchandise
If award travel is impractical, an alternative option is to cash in miles from selected airline programs (including US Airways, but not United) for discounts through MilePoint. Typically, miles are worth two cents each when redeemed for a 10% discount at participating online retailers.


Take Out Mileage Insurance
Depending on how many you have, and your tolerance for risk and anxiety, frequent flyer miles can be insured.

AwardGuard will insure the value of your miles -- up to $7,500 worth of award tickets -- in major loyalty programs, including those of United and US Airways. The cost: $119 for one year's coverage, or $214 for two.


Convert Miles into a Secure Currency
Another tactic for protecting endangered miles: convert them into points in a loyalty program which permits both miles-to-points and points-to-miles transfers.

Transferring miles with an uncertain future into points in a healthier program can increase security and expand options. Without the pressure of impending loss, the points can be redeemed for awards in the new program, converted into miles in another airline program, or converted back into miles in the original program when that airline's prospects improve.

There are two programs which allow such conversions. United participates in both, US Airways in neither.

Members of the Hilton HHonors program can use the HHonors Reward Exchange function to exchange 20,000 United Mileage Plus miles for 40,000 HHonors points. The HHonors points can then be redeemed for awards in Hilton's program. Or, reversing the process, 40,000 HHonors points can be exchanged for 7,000 airline miles.

Similarly, the Diners Club Rewards program allows members to convert as many as 50,000 United miles per year to an equal number of Club Rewards points. And Club Rewards points can be exchanged for United miles, with 2,000 points equaling 1,000 miles,

There's a steep price for the transfers. A roundtrip conversion from miles to HHonors points and back leaves you with only 17.5% of the original miles; and after a roundtrip using Diners points, 50% of the original miles remain.


Do Nothing
Don't neglect the "do nothing" option. Neither bankruptcy nor outright liquidation necessarily entails the loss of your frequent flyer miles.

Bankruptcy
Chapter 11 bankruptcy is not the end of the airline, or of your miles. By definition, Chapter 11 affords ailing companies temporary protection from creditors, allowing them to restructure debt, reorganize and emerge from bankruptcy. And in some cases, that's exactly what happens.

Continental filed for bankruptcy twice, in 1983 and again in 1991. Today, it is the country's fifth largest carrier and in relatively good shape. America West filed for Chapter 11 in 1991, but emerged in 1994. In both cases, no miles were forfeited.

Midway went into bankruptcy in August 2001, and last month ceased operations completely. But in conjunction with its planned return to service as a US Airways Express carrier, members of Midway's Frequent Traveler program were allowed to convert their credits to miles in the US Airways program.

And at US Airways, which is now operating under protection of Chapter 11, it's business as usual for Dividend Miles members. They continue earning and redeeming frequent flyer miles as always.

Liquidation
Even if an airline fails altogether and is forced to liquidate its assets, history suggests that a positive outcome for frequent flyer program members is possible.

The most recent example is TWA. In bankruptcy for the third time, with no hope of surviving as an independent company, TWA put itself up for sale. American purchased not only the bulk of TWA's routes and aircraft, but its Aviators frequent flyer program as well. Aviators members' miles were simply transferred into American's AAdvantage program.

When Eastern Air Lines tanked in 1991, Eastern miles were honored in Continental Airlines' program. And in that same year, when Pan Am succumbed, WorldPass members and their miles were folded into Delta's program.

Acquiring the frequent flyer miles of a failed airline is not corporate altruism. While frequent flyer miles are a liability, they are an asset as well, amounting to a powerful incentive for mileage-earners to continuing adding to their accounts by maintaining loyalty to the host airline.

What NOT to Do
The question comes up regularly in the best of times, and frequently when the airlines are on the ropes: Can't I just sell my miles?

Answer: You can; but you may not.

Run a Yahoo! search using keyword "frequent flyer miles" and you will find a score of companies offering to buy and sell frequent flyer miles. These companies, called coupon brokers, act as middlemen between sellers of frequent flyer miles (or, more accurately, sellers of award tickets) and those in search of airfare bargains.

As tempting as it might be to unload your miles for cash, the airlines' policies -- which all members have implicitly agreed to adhere to -- expressly prohibit the sale, barter or trading of frequent flyer awards. So sellers risk having their accounts permanently frozen if they're found out. And buyers, if caught, will have their tickets confiscated.


The Bottom Line
The above summarizes what frequent flyers can do. What they should do depends on their assessment of the odds of their airlines' long-term survival, and their tolerance for risk and its attendant anxiety. There's no consensus on the former, and the latter is highly personal.

If it were my mother asking, I'd suggest she sit tight and hope for the best. And if she had more than a couple of award tickets' worth of miles at risk, and was prone to worry, I'd buy her a year's worth of mileage insurance.