When you file for bankruptcy, people often expect to make a few sacrifices. Sometimes if you have lots of equity in your house, then your cell phone isn’t protected in a Utah bankruptcy. Don’t worry, though, there are almost always ways to keep it, and the data on it will always be protected. After all, a smart phone is an absolute necessity in this day and age. In order to help determine what sacrifices, if any, are necessary, your lawyer will work with you to make a list of everything valuable that you own. This list is called Schedule A/B. It has a category for listing all electronics, and the courts expect detail. It is important to put everything down on this list, as if it is discovered later in the bankruptcy process by the bankruptcy trustee that you left something out, it may cause the case to be dismissed. Hiding assets in bankruptcy is always a bad idea. However, many will leave their cell phone off their list simply because they need it for their everyday life, don’t want to lose it, and think it is small enough to not really matter. A good lawyer will catch this and make sure that it gets listed and that you get to keep your smart phone. Will they really cancel your cell phone contract after bankruptcy, though? A cell phone plan is called an executory contract.
Understanding Chapter 7
In Chapter 7 bankruptcy the absolute priority rule stipulates the order in which debts are to be paid. Under this rule unsecured debt is separated into classes or categories, with each class receiving priority for payment. Secured debt is debt backed or secured by collateral to reduce the risk associated with lending, such as a mortgage. Unsecured priority debts are paid first. Examples of unsecured priority debts are tax debts, child support, and personal injury claims against the debtor. Secured debts are paid next. Last is the payment of non-priority, unsecured debt with funds remaining from the liquidation of assets. If there are not sufficient funds to pay the non-priority unsecured debt, then the debts are paid on a pro-rata basis.
Executory Contracts and Bankruptcy
A contract with a cell phone company will be categorized as an executory contract. Cell phone contracts and lease agreements are usually classified as executory contracts as it means that if both parties did not hold up their end of the contract, they would be in breach of contract. In this example, if you didn’t pay your cell phone bill or the contract holder did not provide cell phone service, both sides would be in breach of that contract. Yet, even if you wish to keep your cell phone, all executory contracts still need to be disclosed on the bankruptcy petition, but that doesn’t mean it will be cancelled. As long as you are up to date with paying your bill or even if you can bring it current, you will be able to continue the cell phone contract without issue. As most executor contracts like leases or cell phones are so necessary in most cases, the court will have no problem with you keeping the contract if you are paying it. The alternative is also true as well. If you are behind on your cell phone payments and want to cancel the contract, bankruptcy will allow you to do so without any early termination fees. This can be a good idea if you are locked into what is turning out to be an expensive contract. Furthermore, seeking a cheaper cell phone plan can be one of many steps that will allow you to gain control of your monthly expenses. Once you have decided whether you want to keep your cell phone contract or use bankruptcy in order to terminate it, your bankruptcy lawyer can help you do so. Either decision will need to be declared on your bankruptcy petition. This will be the same for any other executory contracts that you hold as well.
The long and short of it is that, no, you probably won’t lose your cell phone or your contract if you file for bankruptcy. This means you should never leave any asset off your bankruptcy petition. If you are truly concerned about whether you will lose it or not, the best course of action is to bring it up with your bankruptcy lawyer.
Can I Keep My Cell Phone in Bankruptcy?
All property that you own, including your cell phone, must be listed in your bankruptcy schedules. Legal exemptions are then applied to protect unsecured equity. Any property not encumbered by a lien or protected by an exemption is fair game for the Chapter 7 bankruptcy trustee. The debtor does not lose property in a Chapter 13 bankruptcy. Even if you lack an exemption to protect your cell phone, the trustee will likely not bother with it because its value to creditors is too little. Unexpired contracts, such as a cell phone contract, are listed in your bankruptcy schedules. The debtor is then able to accept or reject the contract. As a practical matter, filing bankruptcy will not terminate your cell phone contract or disrupt your service. Can you force your cell phone carrier to continue service if you owe it money? This is a tougher question. The bankruptcy code protects debtors from the disconnection of necessary utilities like water, electricity or gas services in Section 366. Specifically, a utility company may not alter, refuse, or discontinue service to an existing customer solely because either
• the customer filed for bankruptcy protection; or
• the customer failed to pay a pre-petition debt to the utility.
However, this protection is limited. Within 20 days after the bankruptcy filing the debtor must give the utility company “adequate assurance of future payment.” This assurance is usually in the form of a new security deposit. The law allows the utility company to keep any previous security deposit and apply that deposit to your prior bill. The amount of the new security deposit is negotiated between the parties, but can be decided by the bankruptcy court if no agreement is reached. If the debtor does not provide “adequate assurance of future payment” within the 20 day time period, the utility provider may discontinue services. The interesting question is whether utility protection for the debtor applies to cell phones. Most debtors are able to keep their cell phone and continue service without interruption. However, every bankruptcy situation is different, so discuss your circumstances with your bankruptcy attorney.
Cell Phones and Chapter 7 Bankruptcies
In a Chapter 7 Bankruptcy, you’re asking the bankruptcy court to discharge most of your debts. In return, the bankruptcy trustee has the right to seize all but certain exempt assets and to sell them to partially satisfy those debts. A cell phone is not among those automatically exempt assets. However, you can petition the court to exempt both your cell phone and the cell phone contract as assets essential to your financial recovery.
Cell phone Contract Cancellation Opportunity
Another bankruptcy attorney brings up the interesting point that a Chapter 7 bankruptcy filing provides an opportunity to dump an unwanted cell phone contract. Although it’s likely that the bankruptcy trustee will grant an exemption of your cell phone from asset repossession if you ask, if you don’t he has no choice and must repossess the cell phone and cancel the contract. If your liquidity problems are so serious that you’ve filed for Chapter 7, getting out of the cell phone contract and going to a simpler pre-paid cell phone may be the better outcome. Cancelling a cell phone contract entails penalties and charges that prevent most customers, even if they don’t like their carrier, from cancelling. Since in Chapter 7, you’re cancelling almost all debt anyway, the cell phone company has no ability to exact those penalties and charges. In comparison to the overall impact of a Chapter 7 bankruptcy on your credit, the additional negative impact of reneging on your cancellation charges may be comparatively slight.
Will I Lose My Cell Phone if I File for Bankruptcy?
Many people realize that filing for bankruptcy comes with some strings. In particular, if you file for Chapter 7 bankruptcy, the trustee can sell your non-exempt property and send the proceeds to your creditor. But does this mean you will lose your cell phone? After all, it is an asset, and those are vulnerable in a liquidation bankruptcy. Fortunately, we have good news: you should be able to keep your cell phone.
List the Cell Phone as an Asset
Virtually everyone has a cell phone today. However, you must disclose all your assets when you file for bankruptcy, and this includes your cell phone. Be sure to list the phone and its value on the appropriate schedule.
Disclose the Cell Phone Contract as Well
You must also list all monthly expenses when you file for bankruptcy. This includes executory contracts, such as your lease agreement and your cell phone plan. Judges now view cell phone contracts as an ordinary expense. Indeed, cell phones have now largely supplanted landlines, so a judge will definitely not view a cell phone as a luxury. So long as you continue to stay current on your cell phone contract, you should be able to keep it. However, the contract might not be working for you. For example, the monthly bill might be too expensive, and you want to get out. Or you might be worried about the early cancellation fee if you find out that you can no longer cover your phone bill. Typically, you can cancel executory contracts in bankruptcy, including your cell phone plan. You should carefully consider whether you want to continue or if you want to back out of it now.
Exempt the Cell Phone
A trustee will not sell any property that is exempted. Under Article 10, Section 4, you can exempt up to $1,000 in personal property. This can include electronics, such as your cell phone. You can also exempt up to $4,000 in anything by using the state’s wildcard exemption so long as you do not use the homestead exemption. As a practical matter, the trustee won’t sell all non-exempt property. It costs time and money to sell assets, and a cell phone will not garner enough money to make selling it worthwhile. In our experience, we have never heard of a debtor losing their cell phone in Chapter 7 liquidation.
Break Free From the Cell Phone Contract
Chapter 7 bankruptcy gives you the opportunity to break out of that prison called your cell phone contract. Chapter 7 bankruptcy is the chance for you to get a fresh start. To maximize the benefits of this fresh start, you need to get rid of every debt and liability that you can. A cell phone contract is often one of the most overlooked expenses that can really add up over time.
If you are filing chapter 7 bankruptcy, you can list the cell phone provider in “Schedule G- Executory Contracts and Unexpired Leases.” Your cell phone contract is an executory contract. Apartment leases, car leases, and rent-to-own furniture deals are other examples of executory contracts. In the statement of intention section of your Chapter 7 bankruptcy petition, you can specifically reject your cell phone contract. Once you reject it, you are no longer liable for any charges on the account (except for usage charges after your case is filed). If you want to ditch the cell phone contract, stop using it before your case is filed.
Show the monthly statement to your bankruptcy attorney
Make sure you give a copy of your cell phone bill to your bankruptcy attorney to make sure that your cell phone provider is properly notified of your Chapter 7 bankruptcy filing. You should make the most of your fresh start and get rid of that awful cell phone contract.
Free Initial Consultation with Lawyer
It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506
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