Why do customers who used their credit cards have "refund priority" over customers who didn't in case of a bankruptcy?

The credit card companies are required by network rules to refund transactions where the purchased product/service was not in fact supplied. They then charge that back to the merchant. This is a three-step transaction:

1. Credit card issuer refunds the customer, charges back the merchant processor, then

2. Merchant processor refunds the issuer, charges back the merchant, then

3. Merchant refunds the processor, or the processor deducts the amount from the moneys the processor owes the merchant for other transactions.

The third step is what makes it work, together with the processor payment schedule. Usually, the processor pays the merchant periodically for transactions accumulated throughout the period, in part to allow these chargebacks to be deducted from the accumulated funds.

If there are not enough funds accumulated with the processor for the benefit of the merchant to deduct from - the processor becomes a creditor in bankruptcy, not the customers.

Credit card companies check the merchants very carefully. If they think your merchant might go bankrupt they can just not allow you to use the card for this merchant. If they allow it, they are responsible that you receive your goods, and if you don’t, they have to refund the money.

This has nothing to do with bankruptcy. The merchant may not be able to find the goods, for example. But if they are bankrupt, or whatever the reason you didn’t get the goods, the credit card company pays the money back to you, and then it’s their problem to get the money back from the merchant, not yours. They do not go to the top or end of any queue, but it’s not your problem.

This is not that difficult. For a credit card purchase, the credit card company can act as a lawyer-in-fact on behalf of their customer for the purposes of procuring a refund. If the customer can prove that a vendor is at fault, the credit card company has span of time in which it is contractually obligated to refund the customer, whether or not there is money available from the merchant. This obligation is created by being on the Visa, Mastercard, Discover, or Amex networks. The span of time is usually very short (90 days)?

A person using a credit card could also try to get refunded directly from the vendor, but that's the long, difficult way that might end up in a courtroom and not even worth the cost of the travel that was paid for!

I think it might be because credit cards have extra protections under federal law — like chargebacks — that debit or check payments don’t have. So maybe businesses or banks process those quicker to avoid disputes or fees from the card companies. Not 100% sure, but that’s what I’ve heard.