Non-Dischargeable Debts

• Most debts are dischargeable in bankruptcy, so long as they don't qualify as a non-dischargeable debt as determined by the U.S. Bankruptcy Code. According to Section 523(a) of the Code, certain debts are exempt from eligibility, including recent taxes, court-ordered penalties, alimony payments, child support and most government-backed student loan debt. Cell phone contracts are not exempt and qualify for discharge under Chapter 7 bankruptcy, or reorganization under Chapter 13 bankruptcy.
  
  

Cell Phone Contracts

• Cell phone contracts are executory contracts that receive the same treatment as all other qualifying debts in a bankruptcy. If you file a motion to discharge your obligation to your cell phone service provider, the court will not only release you of your liability to the provider, but it will also include your cancellation fee as part of your debt as well. On the other hand, if you do not wish to cancel your cell phone contract during your bankruptcy, simply do not request inclusion of the debt in your bankruptcy.
  
  

Considerations

• Be aware that if you file for bankruptcy and include your cell phone contract, you will likely lose any deposit you paid at the time you made your service agreement. Your carrier reserves the right to use your deposit to pay any outstanding debt you have with the company, and may elect to use the deposit prior to the finalization of your bankruptcy case. Additionally, if you wish to obtain a cell phone and service agreement from a new provider in the future, a quick credit check will reveal bankruptcies for up to 10 years, which could require a new deposit or result in a denial of service.
  
  

Cost Comparison

• If you are considering filing for personal bankruptcy for the sole purpose of escaping your cell phone contract, you may want to think twice. Not only will bankruptcy cause significant damage to your credit, but bankruptcy legal fees alone typically outweigh the cost to cancel your cell phone contract. Service providers typically charge $200 or less to cancel a cell phone contract, whereas court fees, filing fees and lawyer's fees for bankruptcy can add up to $1,000 or more.