Can Utility Bills Be Included in Chapter 7?
Understand the complexities of managing utility bills and service during Chapter 7 bankruptcy proceedings.
Chapter 7 bankruptcy provides a legal pathway for individuals seeking a fresh financial beginning. This process is designed to eliminate certain qualifying debts, offering relief from overwhelming financial burdens. By discharging these obligations, individuals can reorganize their finances and begin to rebuild their economic stability.
Discharging Pre-Petition Utility Debts
Most unsecured utility debts incurred before the bankruptcy filing date, known as pre-petition debts, are generally eligible for discharge in Chapter 7 bankruptcy. This includes amounts owed for services like electricity, gas, water, and some telecommunication services. Upon filing a Chapter 7 petition, an automatic stay immediately goes into effect under 11 U.S.C. 362. This legal injunction prohibits utility companies from attempting to collect these pre-petition debts.
The automatic stay also prevents utility providers from discontinuing service solely because of unpaid pre-petition amounts. This provision offers immediate protection, ensuring that essential services are not abruptly cut off. Debts for services used post-petition are not discharged and remain the debtor’s responsibility.
Maintaining Utility Service Post-Filing
While the automatic stay protects against shut-off for pre-petition debts, utility companies are entitled to “adequate assurance of payment” for services provided after the bankruptcy filing. This requirement, outlined in 11 U.S.C. 366, allows utilities to secure payment for new consumption. The debtor or trustee must furnish this assurance within 20 days after the order for relief.
Adequate assurance often takes the form of a new security deposit. Other acceptable forms can include a letter of credit, a certificate of deposit, a surety bond, or prepayment for future utility consumption. The purpose of this assurance is to protect the utility from the risk of non-payment for ongoing services. If adequate assurance is not provided within the 20-day timeframe, the utility company may alter, refuse, or discontinue service.
Existing utility deposits held by the company at the time of filing are considered part of the bankruptcy estate. In Chapter 7, these deposits are typically returned to the debtor, though they might be applied to pre-petition debt. If the utility company demands an amount for adequate assurance that the debtor believes is excessive, a request can be made to the bankruptcy court for a reasonable modification of that amount.
Notifying Utility Companies and Managing Accounts
When filing for Chapter 7 bankruptcy, it is important to include all utility companies to which money is owed. These outstanding debts should be accurately listed in the bankruptcy schedules. This comprehensive listing ensures that the court is aware of all relevant financial obligations.
The bankruptcy court will then formally notify each listed utility company of the bankruptcy filing. This official notification informs them of the automatic stay and the discharge of pre-petition debts. Upon receiving this notice, the utility company cannot pursue collection efforts for those past-due amounts.
Beyond the initial filing, debtors should proactively communicate with their utility providers. This involves discussing the provision of adequate assurance for continued service and establishing new payment arrangements for post-petition usage. Monitoring utility accounts after filing is also prudent to ensure that pre-petition debts are no longer being pursued and that all new billing is accurate.