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If a flight is overbooked, the airline is required to ask passengers to volunteer to take a later flight. Normally, the airline will offer some kind of incentive, such as a free domestic or international round-trip ticket. If an insufficient number of passengers volunteer to be bumped from a flight, the airline must begin involuntary bumping. Generally, passengers with the most recent reservations or those who checked in the latest are the first to be bumped.
If you are bumped, you are entitled to compensation if you have a confirmed reservation (your ticket has an "ok," "hk," or something similar in the status column), the scheduled plane has a seating capacity of more than 60 passengers, and it is not a charter flight. Even if you meet these requirements, the airline might refuse to compensate you if any of the following is true:
If the airline bumps you due to overbooking, the amount of compensation it must provide depends on when it can get you to your destination on another flight. For details, check out FlyRights, published by the Department of Transportation's Aviation Consumer Protection Division (http://airconsumer.dot.gov/publications/flyrights.htm).