Using Chapter 7 Bankruptcy to Prevent a Utility Shut-Off

Filing for bankruptcy will stop a utility from disconnecting service for 20 days, and longer if you can come up with adequate assurance of payment. Learn more.

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Chapter 7 bankruptcy can provide immediate relief if you are in danger of a utility shut-off, including your gas, electricity, water, or even telephone. But in order to keep the lights on, within 20 days of your filing you must provide some sort of proof that you will be able to pay future utility bills.

If you are facing a utility shut-off, other less drastic options might solve the problem. Be sure to explore all of your options before filing for bankruptcy.

Chapter 7 Bankruptcy Prohibits Utility Shut-Offs

If you owe back payments on utility services and you file for bankruptcy, the utility company cannot alter, refuse, or discontinue your service. This prohibition, although similar to bankruptcy’s automatic stay, is actually found in a different section of the bankruptcy code, at 11 U.S.C. §366. This section also prohibits utility companies for shutting off or refusing to provide service just because you filed for bankruptcy.

You Must Provide “Adequate Assurance” of Payment Within 20 Days

Although the prohibition on utility shut-offs kicks in as soon as you file for bankruptcy, it won’t last forever without further action from you. Within 20 days of your filing, you must provide the utility company with “adequate assurance” that you will pay future utility bills. If you don’t comply with this requirement, the utility company can terminate your service. If you do provide adequate assurance of payment, the utility must continue your service, even if back utility payments are discharged through the bankruptcy.

Act Before the 20 Days Pass

In order to prevent a shut-off, make sure you either get the utility company to agree that your payment assurance is adequate, or that you get the court to order the utility to accept your form of payment assurance. The bankruptcy law is not clear on whether the utility can cut-off your service after 20 days without asking for court permission first. Some jurisdictions operate under the assumption that utilities can do this. So don’t let the deadline pass without addressing the adequate assurance issue head on.

What Methods of Adequate Assurance Are Acceptable?

Adequate assurance can be in the form of a letter of credit, cash deposit, certificate of deposit, surety bond, prepayment, or another form of assurance that the utility and you or the trustee agree upon.

What form of assurance a particular utility will accept varies, as does what a particular jurisdiction will deem as acceptable. Check with a local bankruptcy attorney to find out what your court and local utility have accepted in the past.

Other Options for Preventing Utility Shut-Offs

There are other programs and laws that might help you prevent a utility shut-off.  For example, many states prohibit utility cut-offs in extreme weather. And some states have programs that offer utility discounts to certain people, like senior citizens or low-income families. To learn more, see Preventing a Utility Shut-Off.

Filing an Emergency Bankruptcy

If you decide that bankruptcy is your best option for preventing utility termination, you may have to file quickly. If you don’t have time to complete all of the required bankruptcy forms, you can file the petition to start the process and stop the shut-off, and then file the rest of the documents within 14 days. To learn more, see Emergency Bankruptcy Filing.

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