351 Pleasant Street, Suite B-348
Northampton, MA 01060
351 Pleasant Street, Suite B-348
Northampton, MA 01060
I have recently had a number of people ask me whether they can keep their cell phone when they file bankruptcy. My quick answer is, “sure you can keep it, as long as we can exempt it!” But then I typically start to wonder, is that really what my client meant? The real question I should be asking my client is “do you mean the phone itself, the plan or even a cell phone in general?” As with most things in bankruptcy, when I answer my client’s question with a question back to them, it inevitably touches off a conversation that delves into a number of issues related to all aspects of bankruptcy.
First and foremost all assets of a debtor must be listed in the schedules. An individual debtor can keep any assets (or to be more specific: shield the assets from the bankruptcy estate, and ultimately unsecured creditors) so long as she can find a valid exemption. So, we really need to have a basic understanding of the value of a used cell phone, list it in under Schedule B and then exempt it under Schedule C. Even the most expensive cell phone will only have a value of a couple hundred dollars once it is used. Accordingly, we can usually find an exemption that it will fit under. So the quick answer is usually correct. In fact, is all my years of representing individual and business debtors, and before that in my years of representing Chapter 7 bankruptcy trustees, I have never personally come across a time when a trustee had any interest in attempting to liquidate a cell phone — even if it were not exempt. There are costs associated with liquidation of assets and if the sole asset of the bankruptcy estate were a $500.00 cell phone, it is highly unlikely (though certainly permissible) that a Chapter 7 trustee will find a benefit to creditors in selling a single mobile phone.
But really, most people have a cell phone that is burdened with a long(ish) term contract with one of the major mobile phone providers. Typically these contracts with Verizon, AT&T, Sprint and T-Mobile are two years in exchange for a discount on purchase price of the mobile phone. So another question I should be asking is “are you happy with your current contract with your cell phone provider?” One of the magical things about bankruptcy is that it allows debtors to simply reject leases and executory contracts. Cell phone service contracts are an example of an executory contract. While most people plan to keep using a cell phone on an ongoing basis, there are often reasons why people want out of their contract. Among these reasons: People with small children will often discover that their phone, while pretty can quickly become a paperweight after a child has had his hands on it; other’s simply cannot afford the high priced contract they have locked themselves into; or the debtor is already in default on the contract. For those wishing to get out of their cell phone contract or who are already in default, we have always had the option of simply listing the contract in our bankruptcy schedule and choosing to reject the contract. The debtor is now free of the monthly burden of the cell phone contract.
But what about the person who is ok with her current cell phone bill, but is just worried about the potential cancellation fees should her 2 year old get his hands on her cell phone and drop it into the toilet (Note: this, more or less happened to me — so its not that far fetched). For a debtor in bankruptcy the prospect of an extra $200.00 fee for cancelling her plan or $600.00 plus for a new phone to stay in contract can be quite daunting. Could a debtor in bankruptcy reject her current contract, and then keep paying their service provider on a month to month basis to avoid a fee should the plan (for any reason) become unworkable down the road?
The bankruptcy code specifically protects a bankruptcy debtor from disconnection from necessary utilities, such as electricity, gas, water, sewer, etc., so long as the debtor provides adequate assurance of future payment. That is to say, the debtor must provide payment for future service when it comes due.* While in the 21st century most people consider their cell phone to be at least as necessary as those items, the law may not yet have caught up with our attachment to our iPhones. While case law on this particular issue is rather scant, there is very little to suggest that any court will find that a cell phone is a “utility”. Accordingly, if the cell phone contract is rejected, the provider would likley be permitted to stop service to the cell phone.
With that said, the practical answer may well be quite different. While they would almost certainly be permitted to discontinue service if the contract were rejected, the question really is would they? If a debtor is current with her provider prior to bankruptcy, rejects the contract in bankruptcy and then continues to pay her bill each month, would the cell phone provider stop service to the cell phone? While I do not claim to know the inner workings or policies of Verizon or AT&T, I personally doubt they would refuse a monthly payment. Moreover, I doubt they are set up to even notice a consumer Chapter 7 bankruptcy filing at all.
This is the sort of thing that is fun for me to think about, but carries obvious risk to a debtor who needs to have her cell phone, is not behind on payments and can afford to continue making the payments going down the road. It is, however, certainly worth discussing all aspects of all financial decisions, including those surrounding your cell phone with your attorney as you prepare for bankruptcy.
If you are struggling with your debts it is important that you speak to an experienced bankruptcy attorney immediately. To schedule a free consultation call the Law Offices of James Wingfield at 508-797-0200 or visit the contact page of our website today.
*In a Chapter 13 situation a debtor typically must take show she will be able to make payments as they come due for future service to these utilities. In a Chapter 11 situation a common “first day orders” will often provide for an escrowed portion of an anticipated future utility bills as “adequate assurance of future payment”, and an order for utilization of cash collateral to, among other things, pay utility bills as they come due.
A big challenge for me, and I suspect for all lawyers, is to be cautious when using “our language” with unsuspecting clients. At every consultation I am careful to define things like “automatic stay” and “discharge”. Still, there are some terms I will throw around without thinking twice. Recently I noticed a client’s quizzical look…Continue Reading
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