Will Bankruptcy Cancel My Cell Phone Contract?

In a Chapter 13 bankruptcy, you're filing a debt repayment plan with the court. Because you're asking for debt reduction or more time to repay your debts rather than simply declaring you can't pay them, the court allows you to keep your possessions, points out Freedom Law Firm. This includes your cellphone.

In the repayment plan you file with the court, you would normally the payments on your cellphone contract among your expenses. It would be unusual for the court to deny you the right to continue those payments. Arguably, your ability to make and receive cell phone calls increases your income earning potential, and losing that ability diminishes it.

Getting another cellphone contract may be tricky, however. Many cellphone carriers will decline to make a contract with someone going through either Chapter 7 or Chapter 13 prior to discharge. Even after discharge, you may find it difficult to find a carrier who will extend a contract offer since your credit score will be severely lowered. In that event, you may have to use prepaid cellphones until your credit is repaired, which can take several years.

​Consider also​: Tips on Renting While in Chapter 13 Bankruptcy

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 cellphone is not among those automatically exempt assets. However, you can petition the court to exempt both your cell phone and the cellphone contract as assets essential to your financial recovery.

​Consider Also:​ How to See If a Bankruptcy Has Been Discharged

You may be wondering "How can I get out of my cell phone contract?" Chapter 7 bankruptcy filing also provides an opportunity to dump an unwanted cellphone contract, reveals Robert S. Payne Law.

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 cellphone 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 prepaid cellphone may be the better outcome.

Canceling a cellphone contract entails penalties and charges that can prevent most customers, even if they don't like their carrier, from canceling. Since in Chapter 7, you're canceling almost all debt anyway, the cellphone 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.