The Bankruptcy Code prevents utilities from disconnecting your service or refusing to provide service just because you filed bankruptcy. At the same time, the Bankruptcy Code allows utilities to demand “adequate assurance” that you will pay your future utility bills after you file bankruptcy. If you do not provide the adequate assurance that your utility company requires, the utility can discontinue your service.
What is defined as a utility?
The Bankruptcy Code does not specifically define the utilities that are entitled to demand an adequate assurance of future payment. Providers of electricity, natural gas, and water are universally understood to be utilities, and providers of land-line telephone services are generally regarded as utilities. Cable or satellite television and mobile telephone (cellphone) services are generally not regarded as utilities.
Can filing bankruptcy prevent a disconnection of your utilities?
If you are behind in utility payments and you have received notice that your gas, electricity, or water is scheduled to be shut off, filing a bankruptcy will prevent the disconnection of your service. Unlike the automatic stay that prevents other creditors from continuing collection efforts after a bankruptcy petition is filed, the bankruptcy law that applies to utilities only prevents disconnection of your service for 20 days after you file your petition. Your services can be disconnected after 20 days unless you have provided an adequate assurance of payment for ongoing services.
What is an adequate assurance?
If you want to avoid disconnection after the 20 days have passed, you need to satisfy your utility provider that you will pay your bills in the future. Your adequate assurance of future payment must be given within that 20 day window. Whether your assurance of future payment is adequate is initially up to the utility provider — each provider has its own guidelines — but an adequate assurance requires more than a sincere promise to pay your bills in the future. Your assurance must take “the form of deposit or other security.” This means you might need to post a cash deposit, prepay for a period of service, or furnish some form of security (such as a letter of credit from your bank) to the utility provider. In any event, you need to need to act before the 20 days expire to make sure that you avoid disconnection of your service.
What happens if the utility provider does not agree that you provided adequate assurance?
If you and your utility company cannot agree upon an adequate assurance of future payment, it might be possible to ask the Bankruptcy Court to resolve your dispute. The law protecting utilities was amended in 2005 and is somewhat ambiguous.
Many Bankruptcy Judges interpret the law in a way that allows them to decide what constitutes an adequate assurance if you and the utility cannot agree. Other Bankruptcy Judges interpret the law to permit them to modify an agreement you reach with your utility, but only after you have made that agreement. You should consult with your bankruptcy attorney to better understand how the Bankruptcy Court in your jurisdiction interprets the law. Because you only have 20 days after filing bankruptcy to act, you should talk about this issue with your bankruptcy attorney well in advance of filing bankruptcy.
Bankruptcy is complex and many answers depend upon your specific situation. If you still have questions you can schedule a free consultation with a bankruptcy attorney.