Can You File Bankruptcy on Utility Bills?
Navigate the complexities of bankruptcy and utility bills. Understand how your past debt is handled and what it means for your ongoing service.
Bankruptcy provides a legal framework for individuals to address overwhelming debt. Many people struggle with various financial obligations, including household utility bills. This article clarifies how utility bills are handled during and after a bankruptcy filing.
Eligibility for Utility Bill Discharge
When individuals file for bankruptcy, utility bills incurred before the filing date, known as “pre-petition” debts, are considered unsecured debts. These are not backed by collateral, similar to credit card balances or medical bills. Examples include charges for electricity, gas, water, sewer, internet, and telephone services.
In a Chapter 7 bankruptcy, pre-petition unsecured utility debts are discharged, meaning the debtor is no longer legally obligated to pay them. For those filing Chapter 13 bankruptcy, these debts are included within a court-approved repayment plan. Any portion not paid through the plan is discharged upon its successful completion, which usually spans three to five years.
Upon filing a bankruptcy petition, the automatic stay immediately takes effect. This legal protection temporarily prevents utility companies from undertaking collection efforts on pre-petition debts. The utility company is prohibited from demanding payment for past-due amounts or initiating collection lawsuits. This ensures a brief period of relief from collection activities while the bankruptcy case proceeds.
Impact on Utility Services
The automatic stay, which takes effect immediately upon a bankruptcy filing, provides protection regarding utility services. Utility companies are prevented from disconnecting or refusing service solely because of unpaid pre-petition bills. This protection lasts for a limited period, often around 20 days following the bankruptcy filing. During this initial period, the utility company cannot alter, refuse, or discontinue service to the debtor.
To ensure continued service beyond this initial protection period, the utility company may require “adequate assurance of payment” for future service. This assurance often takes the form of a security deposit. The deposit covers ongoing charges for services provided after the bankruptcy filing, not dischargeable pre-petition debts. If service was disconnected due to pre-petition debt before the bankruptcy filing, the utility company may be required to reconnect it, though a reconnection fee might apply.
The law prohibits utility companies from discriminating against a debtor solely because they have filed for bankruptcy. This means the utility cannot impose terms or conditions on a bankruptcy filer that are substantially different from those applied to other customers. The requirement for a deposit is a common practice for many utility providers, and the amount requested should be reasonable to protect against the risk of non-payment for future services.
Post-Bankruptcy Utility Obligations
Utility bills incurred after the bankruptcy petition is filed, known as “post-petition” debts, are not dischargeable within the same bankruptcy case. This distinguishes them from pre-petition debts, which are subject to discharge. Individuals are responsible for paying these new utility bills as they become due to maintain their services.
Failure to pay post-petition utility bills can lead to consequences similar to those faced by any customer who defaults. These include potential service disconnection and the utility company pursuing new collection efforts. Such actions are not covered by the original bankruptcy discharge, as they pertain to new debt.
In Chapter 13 bankruptcy cases, debtors are required to pay their current utility bills directly, outside of the repayment plan. This ensures services remain active throughout the multi-year plan period. Maintaining timely payments for post-petition utilities helps avoid service interruptions and establishes a positive payment history.