By Ryan C. Wood
Great question, especially if you owe your electric company or natural gas company quite a bit of money. In most jurisdictions you do not really have a choice of providers of your natural gas or electric service. So if you file for bankruptcy and owe your utility company money can they turn off your service and not continue to provide you services after a bankruptcy case is filed? The answer is you should be able to obtain services after you file for bankruptcy and discharge your bill owed to the utility company. Good news right? Well, there is a catch though.
First, the good news, pursuant to 11 U.S.C. ยง366(a) of the Bankruptcy Code, a utility may not discriminate against, alter, refuse, or discontinue service to Chapter 7, 11 or 12 trustee, or the bankruptcy filer solely on the basis of the filing of a bankruptcy case under this title or that a debt owed by the debtor to such utility for service rendered before the bankruptcy case was filed and was not paid when due. Great, the Bankruptcy Code makes sure that a bankruptcy filer can discharge their debts owed to a utility company and not be discriminated against. If you are discriminated against by a utility you need to contact your bankruptcy lawyer immediately and document the discrimination as thoroughly as possible.
Second, and more good news, under almost all circumstances any debts owed to a utility company should be an unsecured non-priority debt that is eligible to be discharged when filing for bankruptcy protection. If you are behind 4 months and owe Pacific Gas & Electric $899.00 prior to filing for bankruptcy this amount is dischargeable.
Okay, so here is the catch. You might be asking yourself why would a utility company continue to do business with someone if they just discharged an $899.00 bill owed to them? Section 366(b) of the Bankruptcy Code is why. This section provides that an utility may alter, refuse or discontinue service if the bankruptcy filer or the trustee does not within 20 days after the date the case was filed furnish adequate assurance of future payment. Adequate assurance means a cash deposit, a letter of credit, a certificate of deposit, a surety bond and a prepayment of utility consumption or another form of security that is mutually agreed on between the utility and the debtor or the trustee.
The most common adequate assurance is the utility company will request a deposit before agreeing to continue to provide services. The question is how much will the deposit be? That usually depends upon the amount of your usage just like a deposit for a rental is usually based upon the amount the monthly rent. What if you already had a security deposit with the utility and then started to miss payments? Section 366(c)(4) provides a utility may recover or set off against a security deposit provided to the utility by the bankruptcy filer before the date of the filing of the petition without notice or order of the court. Okay, so the utility has the right to use the security deposit exactly like it was meant to be used prior to a bankruptcy case being filed. In a large business bankruptcy a bankruptcy lawyer might discuss with a utility that their customer is on the brink of bankruptcy and then the utility company could hurry up and take the customers security deposit. That would lead to additional issues outside the scope of this article though.
The bottom line is that you can discharge debts owed to utility companies when filing for bankruptcy protection. The bad news is you are most likely going to have to come up with a deposit for your services to continue once you file for bankruptcy though.
