Bankruptcy and Utilities: Keeping the Lights On

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Bankruptcy Basics Chapter 7 Bankruptcy

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Posted by: John O'Connor

Utilities and Bankruptcy

It’s almost summer time again, and the economy hasn’t fully recovered. Many consumers are still struggling to pay bills and no one wants to be left without air conditioning in July. If you’re concerned about having the power shut off due to past due utility bills, it is important to be aware of your rights in bankruptcy. This post is not intended to suggest that past due utilities should be the primary motivating factor for a bankruptcy filing. However, past due utility bills ca be symptomatic of larger financial troubles and bankruptcy can provide relief as well as some breathing room.

As bankruptcy attorney, John Skiba explains in this post:

the filing of a bankruptcy can help you to keep the utility company from disconnecting service and even discharge past due amounts.

How is this possible? Section 366(a) of the Bankruptcy Code specifically addresses utilities, and provides that a “utility may not alter, refuse or discontinue service” to a debtor who files for bankruptcy. No, your utility company cannot turn off your light when you file for bankruptcy.

The Bankruptcy Code goes a step further and also prohibits a utility from discontinuing service even when the debtor owes the utility for past due bills that accrued before the bankruptcy was filed. Once in bankruptcy, your past due bills can’t be the reason for a discontinuation of service. But, there is a catch.

Twenty Day Time Window and Assurance of Payment (Deposits)

However, it is important for debtors to be aware that the prohibition against discontinuing service doesn’t last forever. If the debtor is discharging utility company bills in their bankruptcy, the Bankruptcy Code gives them twenty (20) days to put down a deposit or the utility company can discontinue service.

The amount of the deposit must be sufficient to give “adequate assurance of payment.” What does this mean? You likely won’t be required to come current with your entire outstanding balance, but a meaningful deposit will be required in order to show the utility that you intend to make payments going forward. If you can come up with a deposit and maintain payments thereafter, service will continue as usual.

If you’re concerned about losing power due to past due bills and want to learn more about your options in bankruptcy, consult an attorney.