Here at Bankruptcy Clinic, we’re often asked about the effect that declaring bankruptcy will have on an existing or new mobile phone contract. This article has been prepared to give you an overview of the key points you may want to know if you’re considering bankruptcy as an option for dealing with your debts.
You must tell the Official Receiver about an existing contract
If you’re in a Pay Monthly agreement with a mobile phone provider which includes paying a monthly amount against a handset, then this is a credit agreement. Whether or not you’re in arrears with your contract, you must declare it when asked to fill in the forms that the Official Receiver (OR) will send you once your Bankruptcy Order has been made.
Your monthly contract payments, including call costs, must also be declared as part of your outgoings. These need to be listed in the preliminary paperwork that you’ll complete when applying for bankruptcy as well as in the forms the OR will send you.
Whether or not your mobile phone costs are seen as an ‘essential living expense’ by the OR depends on your circumstances. For example, if you don’t have a land line phone and your mobile is your only means of communication, or if you need it for work purposes, the monthly costs may be included in your priority payments.
If you can afford the payments, you should be able to keep the contract
Provided that you’re not in arrears with your mobile phone provider, the OR should let you keep your contract open. If you own your handset outright, it’s unlikely that this will be viewed as an asset (unless it’s brand new and worth a significant amount of money), so you should be able to keep this, too.
However, whether or not you own the handset, you may be encouraged to downgrade to a cheaper contract to maximise your disposal income. This would enable you to pay off more of your debts through an Income Payments Arrangement or Order that may be made against you by the court.
Of course, if you’re in debt to your mobile phone provider, that changes everything. They’ll be listed as a creditor in your bankruptcy paperwork and will need to apply to the OR to receive any payment from your estate. Your mobile phone contract will be cancelled and you’ll probably have to return your handset if there are still outstanding payments on it.
If you keep your contract, your mobile phone provider doesn’t need to know about your bankruptcy
If the OR agrees to keep your mobile phone contract out of your bankruptcy, there’s no need to declare it to your provider. As long as you keep making payments on time, your contract will continue as normal – and you may find that you automatically qualify for future upgrades without being credit checked.
However, the terms of your Bankruptcy Order will place a strict limit on your ability to obtain credit during your bankruptcy period. So if your mobile provider offers you a credit agreement that exceeds this amount, you’ll need to get the OR’s permission to go ahead.
Applying for a new mobile phone contract whilst bankrupt
If your bankruptcy causes your existing mobile contract to be cancelled, or you want to change providers once your bankruptcy period is underway, you may be able to apply for a new contract. However, as noted above, there will be a limit on the amount of credit you can apply for without needing the OR’s permission.
You should also consider that any potential new provider will look at your credit file before giving you a new contract – so they’ll find out about your bankruptcy and may be less willing to give you a contract. A better idea might be to buy a cheap handset and set up a Pay As You Go deal (PAYG), which doesn’t normally require a credit check.
Bankruptcy and existing PAYG phones
If you already have a PAYG mobile deal in place when you’re declared bankrupt, this won’t be affected as it isn’t a credit agreement. You’ll simply need to include the monthly amount you normally spend on topping up your phone as an outgoing when completing your bankruptcy paperwork. The OR will consider this cost in the same way as they would for Pay Monthly call costs (see above), so it may or may not be viewed as an essential expense.
Unless your PAYG handset is new and/or worth a significant amount of money, the OR won’t view it as an asset when dealing with your estate.