Cell Phones and Bankruptcy

Filing bankruptcy can release a debtor from an expensive cell phone contract and let debtor discharge the early termination penalty. While now almost everyone has a cell phone, the contracts are typically long term and it is easy for a debtor to run up a substantial bill.  Should a typical consumer debtor filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy list their cell phone provider as a creditor for bankruptcy purposes?

If debtor has an outstanding bill on a closed account, then such bill must be included with the rest of the outstanding debts. Any such bill will be eliminated by the Chapter 7 Bankruptcy filing, or paid in Chapter 13 Bankruptcy.

In addition, the bankruptcy filing would enable the debtor to not only eliminate their balance but remove their obligation to pay any early cancellation penalty.  Filing a Chapter 7 Bankruptcy has the effect of terminating any “executory contract” which is one in which the parties are still performing it. Cell phone contracts are executory contracts during the contract period. By including the cell phone provider as a creditor in the bankruptcy petition, the contract is automatically terminated, and any early cancellation penalty becomes a dischargeable debt just like the credit card debts. Some cell phone companies may request a security deposit after the bankruptcy filing, but, in my experience, most providers will not ask for a security deposit.

If debtor plans to keep the account, the account must be listed in the bankruptcy petition. Debtors should list the cell phone provider as a potential creditor in the bankruptcy petition, even if no balance is owed. Although the bankruptcy law has the effect of automatically terminating the cell phone contract, virtually all cell phone companies will continue service if the account is current, and will not pay any attention to the bankruptcy filing. The advantage to the debtor is that by including the cell phone company in the petition, even if it is current, is that the contract can later be terminated before the end of the typical two-year period, and the debtor will not be responsible for the early termination penalty.

In addition to the above, debtors should always include their cell phones in Schedule B which lists all of their personal property. Here in Rochester, Chapter 7 trustees have been raising this issue during 341 meetings and asking debtors about the cell phones they owns. Since some of the phones, such as an iPhone, are valuable, trustees can look at them as one more potential asset in the bankruptcy estate.

If you contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.

Treatment of Social Security Benefits in Chapter 13 Bankruptcy

I have previously written that Social Security income, whether retirement, survivor benefits, SSI or Social Security disability are not included in debtor’s income for the purposes of means testing. While not included in the means test figures, do the debtors have to include such payments in their Chapter 13 Bankruptcy plan and use that income toward making their plan payments?

According to a decision from the Bankruptcy Court for the Northern District of New York, a Chapter 13 Plan can be confirmed despite not including Social Security retirement income. In In Re Burnett, together with its companion case, In re Uzailkos, the proposed payment plans did not include social security income on Schedule I. As filed, the Burnett plan projected paying usecured creditors 10% of their claims, Uzailko’s plan proposed to pay creditors 37%.

Because social security income was not included, the Burnett’s Schedule I income exceeded Schedule J expenses by $493,67. If social security was included, the income available for repayment would increase by $878 to $1,371.67. For Uzailko, the available payment amount would increase $400.25 to $1,496.25.

The Chapter 13 Trustee filed objections to both plans arguing that the cases were not filed in “good faith” because social security income was not included in calculating the minimum plan payment. A “good faith” objection is the general objection to confirmation of a Chapter 13 Plan. Under the Bankruptcy Code Section 1325(a)(3), a plan which fails to pay this disposable income minimum can be denied confirmation on the grounds the debtor’s plan was not filed in good faith.

Social security income different from other forms of income under BAPCPA. Under BAPCPA, Section 101(10A) was modified to exclude Social Security benefits from the the Chapter 7 Bankruptcy means test and the Chapter 13 Bankruptcy disposable income test.

After reviewing different lines of cases addressing these issues, the court accepted the reasoning in a series of cases that held that the treatment of social security income in BAPCPA’s disposable income test precluded requiring a chapter 13 debtor to apply social security income in a plan. Accordingly, as there were no other ‘bad faith’ factors in Burnett and Uzalko cases, the judge confirmed the plans over the trustee’s objections.

If you contemplating filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, or are dealing with debt problems in Western New York, including Rochester, Canandaigua, Brighton, Pittsford, Penfield, Perinton, Fairport, Webster, Victor, Farmington, Greece, Gates, Hilton, Parma, Brockport, Spencerport, LeRoy, Chili, Churchville, Monroe County, Ontario County, Wayne County, Orleans County, Livingston County, and being harassed by bill collectors, and would like to know more about how bankruptcy may be able to help you, contact me today by phone or email to schedule a FREE initial consultation with a Rochester, NY, bankruptcy lawyer.