Can I Keep My Cell Phone in Bankruptcy?

One common question during the initial bankruptcy interview is, “Can I keep my cell phone?” This question is actually three questions with three different answers.

First, can you keep your personal cell phone? 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.

Second, can you continue your current cell phone service? Unexpired contracts, such as a cell phone contract, is 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.

Third, 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 (1) the customer filed for bankruptcy protection; or (2) 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. When implementing section 366, Congress stated that:

This section is intended to cover utilities that have some special position with respect to the debtor, such as an electric company, gas supplier, or telephone company that is a monopoly in the area so that the debtor cannot easily obtain comparable service from another utility.

It is common knowledge that individuals are dropping home land lines in favor of cell phones. According to trade group US Telecom, over 100 million land lines have been disconnected since 2000. It is expected that only 1 in 4 U.S. households will have an active copper phone line at the end of this year, and telephone giant AT&T has announced its intent to turn off its network of copper land lines by the end of this decade.

So, does Section 366 apply to an individual’s cell phone service? Probably not.

A few years ago the Fifth Circuit Court of Appeals decided that a cable television provider is not a utility service for purposes of the bankruptcy code. The court reasoned that the debtor could “easily obtain comparable service from another utility.” The debtor will typically have choices when it comes to cable television, cell phone, and internet, so a bankruptcy court will likely find that Section 366 does not apply to these services.

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.