Can Utilities Be Included in Bankruptcies?

Bankruptcy provides a legal avenue for individuals to manage overwhelming debt, offering a structured path toward financial relief. Within this process, utility debts, such as those for electricity, gas, water, telephone, and internet services, are specifically addressed. Understanding how these essential service debts are handled in bankruptcy is important for individuals seeking to stabilize their financial situation.

Pre-Bankruptcy Utility Debt

Utility bills incurred before a bankruptcy petition is filed are unsecured debt, not backed by collateral, similar to credit card or medical bills. Past-due utility bills can typically be discharged through the bankruptcy process, eliminating a person’s personal liability for these specific amounts. The petition date serves as a clear cutoff, distinguishing between debts that may be discharged and those incurred afterward.

Upon filing for bankruptcy, an automatic stay goes into effect, prohibiting utility companies and other creditors from collecting on pre-petition debts. This protective measure stops collection calls, billing statements, and lawsuits related to these older debts. Utility companies are also generally prevented from discontinuing service solely due to outstanding balances incurred before the bankruptcy filing. The automatic stay provides a temporary reprieve, offering individuals a period to address their financial circumstances without the threat of service disconnection for past arrears.

Maintaining Utility Service During and After Bankruptcy

Even with a bankruptcy filing, utility companies are prohibited from cutting off service solely due to a bankruptcy filing or unpaid pre-petition debts. However, this protection is not indefinite and requires the debtor to take specific actions to ensure continued service. Within 20 days of the bankruptcy filing, the debtor must provide the utility company with “adequate assurance of payment” for future services. This protects the utility provider from nonpayment for services rendered after the case begins.

Adequate assurance often involves a new security deposit, typically equivalent to one to three months of estimated service. Other forms of assurance might include a letter of credit, a surety bond, or prepayment for services. If adequate assurance is not provided within the 20-day timeframe, the utility company may then be permitted to discontinue service, even if the pre-petition debt is being discharged. Any new utility bills incurred after the bankruptcy filing are post-petition debts and must be paid promptly to maintain service, as bankruptcy does not discharge these ongoing charges. A pre-existing utility deposit may be applied to pre-petition debt or returned to the bankruptcy estate.

Utility Treatment Under Different Bankruptcy Chapters

The treatment of utility debts varies based on the type of bankruptcy chapter filed. In a Chapter 7 bankruptcy, pre-petition utility debts are typically discharged. The debtor becomes responsible for paying all utility bills incurred after the filing date to keep services active. Adequate assurance for future service is required within 20 days post-filing.

Conversely, under Chapter 13 bankruptcy, which involves a reorganization and repayment plan, past-due utility bills can be included in the court-approved repayment plan. This allows the individual to pay off these arrears over a structured period, typically three to five years. While pre-petition arrears are addressed through the plan, the debtor must continue to pay all post-petition utility bills directly as they become due to avoid service disruption. The automatic stay applies in Chapter 13, preventing disconnections for pre-petition debt, and adequate assurance for ongoing service is still required.