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Cell phones in bankruptcy
Hey debtors,
This is episode number three. Do you depend on your cellular phone every day like I do? Like everyone does? These days our phones are really our primary computers. We depend on them for access to our digital lives.
Everything from appointments at the DMV to staying connected with our friends on Insta, without our phones we'd almost disappear from our social and economic world.
In today's episode, I'm exploring what happens to your phone, your cellular phone service, and the unpaid balance on that $1,099 Apple iPhone 11 Pro Max that you financed through your cell phone company when you file for bankruptcy.
- 0:20 Welcome to the podcast!
- 0:55 Our topic!
- 9:40 Outro
Listen to the podcast for more episode (link below), but there are three things to consider. First, is the question of whether you can keep the phone at all. The answer probably is an easy yes. Even if you did drop over $1,000 on the phone, it's surely not worth nearly as much now.
Even if it's an Apple device you just picked up a few months ago that's still fairly valuable eBay and, for some reason, your exemptions can't cover it, the trustee would still need to pay off any unpaid balance on the phone, find some money to send to creditors, and still earn a reasonable fee for doing so. Consequently, in the vast majority of cases, it's probably not going to be worth it for the Chapter 7 Trustee to give it much thought.
Second, the contract for cellular service is worth exploring since your phone isn't all that valuable outside of a wifi hotspot without it. Since it's an ongoing contract, it's usually considered an "executory contract," which means you can choose to keep it active. This is key for a lot of us.
But on the other hand, you might decide you've got a really lousy contract that you want out of. A lot of the cell phone companies lock us into multi year contracts in exchange for financing our devices (is that actually a deal?). So if you want out, bankruptcy might be your time.
Remember, the idea behind bankruptcy is not just discharging debts but to get you a fresh start, which might also mean cancelling contracts that no longer make sense, whether they're apartment leases, car leases, cellular phones, or almost any other contract your in that's going to be a burden going forward.
Finally, there's the question of any unpaid balance on the phone. Like a car, unless you paid cash for it, you probably financed the phone purchase, and you probably owe more than it's worth (just like a car). So, if you were to give the phone back to the company (assuming they'd take it), any difference between what it's worth and what you owe (called a deficiency) would be discharged in the bankruptcy.
What prompted this podcast was a Reddit post that seemed to indicate that Verizon was charging a customer, after the bankruptcy, for the deficiency. This would have been a huge violation of the bankruptcy discharge and/or automatic stay laws, and I mentioned in the podcast.
UPDATE: As it turns out, it seems that Verizon was actually just discharging any unpaid balance and letting the customer keep the phone "free and clear"--NOT charging the customer for the unpaid balance as it was originally presented. Who would expect a company like Verizon would want to contribute assets to your fresh start?
View all episodes
By Michael RiceHey debtors,
This is episode number three. Do you depend on your cellular phone every day like I do? Like everyone does? These days our phones are really our primary computers. We depend on them for access to our digital lives.
Everything from appointments at the DMV to staying connected with our friends on Insta, without our phones we'd almost disappear from our social and economic world.
In today's episode, I'm exploring what happens to your phone, your cellular phone service, and the unpaid balance on that $1,099 Apple iPhone 11 Pro Max that you financed through your cell phone company when you file for bankruptcy.
- 0:20 Welcome to the podcast!
- 0:55 Our topic!
- 9:40 Outro
Listen to the podcast for more episode (link below), but there are three things to consider. First, is the question of whether you can keep the phone at all. The answer probably is an easy yes. Even if you did drop over $1,000 on the phone, it's surely not worth nearly as much now.
Even if it's an Apple device you just picked up a few months ago that's still fairly valuable eBay and, for some reason, your exemptions can't cover it, the trustee would still need to pay off any unpaid balance on the phone, find some money to send to creditors, and still earn a reasonable fee for doing so. Consequently, in the vast majority of cases, it's probably not going to be worth it for the Chapter 7 Trustee to give it much thought.
Second, the contract for cellular service is worth exploring since your phone isn't all that valuable outside of a wifi hotspot without it. Since it's an ongoing contract, it's usually considered an "executory contract," which means you can choose to keep it active. This is key for a lot of us.
But on the other hand, you might decide you've got a really lousy contract that you want out of. A lot of the cell phone companies lock us into multi year contracts in exchange for financing our devices (is that actually a deal?). So if you want out, bankruptcy might be your time.
Remember, the idea behind bankruptcy is not just discharging debts but to get you a fresh start, which might also mean cancelling contracts that no longer make sense, whether they're apartment leases, car leases, cellular phones, or almost any other contract your in that's going to be a burden going forward.
Finally, there's the question of any unpaid balance on the phone. Like a car, unless you paid cash for it, you probably financed the phone purchase, and you probably owe more than it's worth (just like a car). So, if you were to give the phone back to the company (assuming they'd take it), any difference between what it's worth and what you owe (called a deficiency) would be discharged in the bankruptcy.
What prompted this podcast was a Reddit post that seemed to indicate that Verizon was charging a customer, after the bankruptcy, for the deficiency. This would have been a huge violation of the bankruptcy discharge and/or automatic stay laws, and I mentioned in the podcast.
UPDATE: As it turns out, it seems that Verizon was actually just discharging any unpaid balance and letting the customer keep the phone "free and clear"--NOT charging the customer for the unpaid balance as it was originally presented. Who would expect a company like Verizon would want to contribute assets to your fresh start?