Utility companies are not like typical creditors for New York bankruptcy debtors. Unlike, say, a credit-card, debtors usually cannot forgo using their utilities. By the same token, utilities aren’t like cell phone providers or other creditors with executory agreements because they’re necessary (and regulated) services debtors need in their homes. So what happens to them in a New York bankruptcy case?
First of all, as with all creditors, debts arising from past-due bills from utility companies are dischargeable in a chapter 7 bankruptcy. However, this is usually not where the problem ends.
Similar to secured creditors, utility companies will often threaten to shut off their services to debtors to motivate them to pay their past bills. If debtors file bankruptcy before this happens, then the companies cannot carry out that threat, or at least, not at first. The reason is that the Bankruptcy Code treats utility companies’ threats and actions of shutting off services as collection efforts, and like all collection efforts these are prevented by the automatic stay that begins with any bankruptcy filing. If utility companies have already shut off services, then debtors can demand the company restore them to their homes.
There’s a catch, though, that applies only to utilities. Section 366 of the Bankruptcy Code permits a utility company to reduce or shut off its services to the debtor after 20 days if the debtor (or the trustee) has not paid a post-petition deposit to ensure future payment. This deposit is usually around $100, and if it’s excessive, then the debtor, trustee, or even other creditors can move the bankruptcy court to reduce it. Many utility providers will either refund the deposit or credit it to the debtor’s future regular payments after six months or a year.
Once the deposit is paid, the utility will provide services through the bankruptcy and beyond, but it can reduce or terminate services if the debtor falls behind again. One caveat is that the utility may be required by law to provide services in times of emergency or cold weather, whether the bills have been paid or not.
What happens if debtors can’t afford the post-petition deposit? In that case, if there are assets, then the trustee can be persuaded to pay the bill. Otherwise, the debtor probably won’t have many options, and the best alternative will be changing housing to something that’s more affordable.
Utilities are a necessity for home life, and as a result, bankruptcy treats them in some ways like a secured asset and in other ways like an unsecured debt. If you have a large utility debt, then talking to an experienced New York bankruptcy lawyer can help you strategize your options.
For answers to more questions about utilities in bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy attorney Brooklyn NY Bruce Weiner for a free initial consultation.
