Cell Phones in Bankruptcy

Find out what will happen to your cell phone in bankruptcy.

Twenty years ago, bankruptcy courts questioned the reasonableness of cell phones and other electronic conveniences like cable television and Internet service because they just weren't that common. Not so much today, however—especially since cell phones have overtaken landlines as the communication mode of choice.

Even so, many people still wonder whether the bankruptcy courts consider the cell phone a luxury (and whether they'll lose it). Generally speaking, the answer is no. However, that doesn't mean that you're in the clear. You'll still need to disclose the phone as an asset, list the monthly bill as an expense, and decide whether to keep the cell phone plan (an executory contract).

Keeping a Cell Phone in Bankruptcy

As a part of filing a bankruptcy case, a debtor (filer) must disclose all property in the official bankruptcy paperwork filed with the court. You don't lose everything, however. You can protect (exempt) the type, amount, and value of the property allowed under the exemption statutes of your state.

Here's how exemptions work:

Cell Phones in Chapter 7 Bankruptcy

The trustee appointed to oversee a Chapter 7 bankruptcy sells any nonexempt property a debtor can't exempt and turns over the proceeds to the creditors. Most people find that their exemptions sufficiently cover all of their household goods and electronics, including cell phones.

Cell Phones in Chapter 13 Bankruptcy

A debtor can keep all nonexempt property in Chapter 13 bankruptcy as long as the debtor pays its value through the three- to five-year Chapter 13 repayment plan.

Although cell phones can be a high-dollar item when purchased—even more expensive than many computers—like a new car, they lose much of their value once they're out of the box. So it's unlikely that a Chapter 7 trustee would have any interest in attempting to liquidate a used cell phone—but you never know. So you must list cell phones, just like any other asset, in the schedules.

Paying for a Cell Phone in Bankruptcy

In bankruptcy, you're required to list all expenses. The trustee will review your monthly payments to determine whether they're reasonable. Also, larger-than-normal bills tend to trigger bankruptcy audits.

Today, however, the bankruptcy court considers a reasonable monthly cell phone bill a necessary expense—and not just for the adults in the family. Few courts question whether it's appropriate for a bankruptcy debtor to pay for a cell phone for dependents who have no access to pay phones.

The monthly cell phone payment amount gets listed with other utility and household expenses. Other telecommunications expenses, like caller ID, call waiting, pagers, special long-distance services, and business cell phones can also be included in the calculation but might have to be justified as needed for the production of income or to maintain the health and welfare of the debtor and the debtor's dependents.

Listing the Cell Phone Contract in Bankruptcy

A debtor must disclose all financials, including any leases and executory contracts (ongoing agreements like car or furniture leases, memberships, and cell phone contracts). But, that doesn't mean you'll lose your service. A debtor who continues making the contract payment can keep the cell phone plan.

If you don't want to keep the contract, a provision in the bankruptcy code might come in handy. If you're in a contract for cell phone service (most of which run one to two years), you can reject the contract as a part of the bankruptcy case. Any remaining payments you owe on the service contract get wiped out (discharged).

Keep in mind that you might be required to surrender your cell phone if you're renting or financing the phone itself. You should consult with your bankruptcy attorney who can discuss the advantages and disadvantages of rejecting the contract.

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