If you’ve recently filed for Chapter 7 bankruptcy and are a Verizon customer for cellular or internet services, you may have received an email regarding your payment options during bankruptcy proceedings. In it, Verizon Wireless lists the devices subject to purchase money security interests, providing specific details including agreement numbers, dates, device models, amounts financed, and remaining balances. This breaks down the financial responsibilities tied to each device, helping you make informed decisions in the bankruptcy process.
What are Purchase Money Security Interests?
Purchase money security interests (PMSIs) are legal rights granted to a creditor, typically in the context of a specific purchase, such as buying a mobile device on installment plans. Unlike traditional secured loans where the creditor provides a loan separate from the purchase, PMSIs arise when the creditor extends credit to enable the debtor to buy specific collateral, like the device itself. In bankruptcy, PMSIs are treated differently from general secured loans. While both involve collateral, PMSIs often receive preferential treatment, with the creditor having priority in recovering their debt from a trustee sale of the collateral, as they are directly tied to the acquisition of the specific property.
Automatic PMSI Perfection in Illinois
Perfecting a Purchase Money Security Interest (PMSI) helps creditors secure their rights to collateral, especially in bankruptcy proceedings. Under Illinois law, which follows the Uniform Commercial Code (UCC), PMSIs in consumer goods—like mobile devices bought on installment plans—are automatically secured once the buyer receives the device and the credit is provided. The creditor does not need to file any paperwork with the government, such as with the Secretary of State, to validate this claim. This automatic perfection ensures the creditor has a priority interest in the device without the need to file a financing statement.
Verizon’s Bankruptcy Policy
During the automatic stay period mandated by bankruptcy law, Verizon is prohibited from pursuing collection efforts for any overdue debts owed prior to your bankruptcy filing. Verizon will not collect any pre-petition debts for the duration of the automatic stay, unless it files a motion for relief from stay, which is improbable in this context. Under Verizon’s Bankruptcy policy, all pre-petition debts will be removed from your bill. It may take up to two billing cycles for these adjustments to be reflected. Eventually, you will receive a new bill indicating the current amount due, which will have removed the pre-petition amounts.
What Are My Options?
If you’re in Chapter 7 bankruptcy, managing your finances is likely challenging, but having a cell phone is essential for everyday life. Therefore, it’s crucial to carefully consider your options. As mentioned earlier, you have some time, but you should be proactive. It’s worth noting that if your phone isn’t unlocked, Verizon does have the option to permanently disable it (“brick” it) if you fail to cooperate.
I think the most important thing is to determine whether you can afford services going forward. To figure this out, it’s crucial to understand the payments and dischargeable amounts. So, what exactly gets discharged in bankruptcy? Verizon states that all pre-petition amounts are wiped from your bill. “Pre-petition” refers to overdue amounts owed as of your bankruptcy filing date, not the case closure date. For instance, if you were $100 overdue on your filing date, those charges are eliminated, reducing your total balance by $100. Additionally, if you financed a device, the payments are typically broken down monthly, meaning only the monthly overdue portion at the time of filing is discharged, not the entire amount owed on the device.
It’s crucial to thoroughly evaluate your financial situation and make a carefully considered decision regarding continuation of service. Any debts accrued after filing for bankruptcy can be deemed new liabilities and won’t be included in the bankruptcy discharge. These new debts can impact your credit report and, in severe instances, may lead to collection proceedings.
Option 1: Surrendering Your Cell Phone to Verizon / Cancelling Your Service
If you’re certain that you won’t be able to afford your payments in the future, surrendering your phone is the best choice. This prevents unexpected service interruptions and keeps post-bankruptcy overdue payments from negatively impacting your credit score in the future. Furthermore, if your devices are financed, it’s important to know that you don’t own them outright, and they will remain valid debts collectible after bankruptcy. Attempting to sell these devices or reporting them as stolen is not advisable; surrendering them is the appropriate course of action.
To surrender your device or cancel your service, simply stop using the device and contact Verizon at 800-803-7559 to let them know your decision. After you’ve made this call, Verizon can cancel its service without further notice. And going forward, the US Government has a Cell Phone Subsidy for Low Income Individuals.
Option 2: Continue Service
If you want to continue service, Verizon will simply remove all of your pre-petition overdue payments from your bill. A few months after filing for bankruptcy, while your case is ongoing, you’ll receive a new bill indicating that you are up-to-date on payments. To continue service, simply pay this bill by the due date to continue your service as normal. This also applies to all financed device payments. I’m not sure whether you can choose to surrender certain devices while keeping others, I would call Verizon to inquire about your options.
Common Misconceptions
Several discussions on Reddit touch upon the topic of reaffirmation concerning financed devices. As previously emphasized, reaffirmation is generally not advisable, particularly with a cell phone plan. Verizon allows you to continue making payments without reaffirmation, so there’s little benefit to re-binding yourself to your phone plan. Furthermore, it’s important to notice that you will still be responsible for the months of service you use after filing for bankruptcy, regardless of any reaffirmation agreement.
Numerous online posts also suggest that Verizon will completely discharge all debts owed, including financed devices, essentially providing a free cell phone. While this may have been accurate in the past, it’s important to note that as of 2024, this is no longer the case. From what I’ve seen, Verizon will only waive monthly overdue payments, rather than forgiving the full amounts owed.
Seeking Guidance from Steven Grace, Chicago Bankruptcy Attorney
For those navigating Chapter 7 bankruptcy with Verizon services, understanding your options is paramount. Steven Grace, a reputable bankruptcy attorney in Chicago, offers free consultations to individuals seeking clarity amidst financial challenges. If you have questions regarding Verizon and overdue payments, Mr. Grace will do his best to provide answers for your situation. With his expertise and dedication to client advocacy, Steven Grace can help you navigate the complexities of bankruptcy proceedings with confidence and peace of mind.
