Using Chapter 7 Bankruptcy to Prevent a Utility Shut-Off

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

If you face a utility shut-off, other less drastic options might solve the problem. It is a good idea to explore all avenues before filing for Chapter 7 bankruptcy.

Chapter 7 Bankruptcy Prohibits Utility Shut-Offs

If you owe back payments on utility services and file for bankruptcy, the utility company cannot alter, refuse, or discontinue your service. Although similar to bankruptcy's automatic stay, this prohibition is found in a different section of the bankruptcy code. (11 U.S.C. §366.) It also prohibits utility companies from 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 a utility shut-off kicks in as soon as you file for bankruptcy, it won't last forever without further action from you. Within 20 days of filing, you must provide the utility company with "adequate assurance" that you will pay future utility bills. In other words, the utility company can require a deposit.

If you don't comply with this requirement, the utility company can terminate your service. If you provide adequate payment assurance, the utility must continue your service, even if the bankruptcy discharges (wipes out) back utility payments.

Taking Action Before 20 Days Passes

To prevent a shut-off, you'll either want the utility company to agree that your payment assurance is adequate or get the court to order the utility to accept your form of payment assurance. The bankruptcy law isn't clear about whether the utility can cut off your service after 20 days without asking for court permission first, and your jurisdiction might operate under the assumption that utilities can do this. So don't let the deadline pass without addressing the adequate assurance issue head-on.

Acceptable Ways to Provide Adequate Assurance

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 both the utility and you (or the trustee agree) will be satisfactory.

What form of assurance a particular utility will accept varies. Check with a local bankruptcy lawyer to determine what your court and local utility have previously accepted.

Other Options for Preventing a Utility Shut-Off

Some other programs and laws 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 bankruptcy is your best option for preventing utility termination, you might have to file quickly. If you don't have time to complete all of the required bankruptcy forms, you can file the petition and a few other items to start the process, stop the shut-off, and then file the remaining documents within 14 days. To learn more, see Emergency Bankruptcy Filing.

Can Utility Bills Be Included in Chapter 7?

Yes. It's common to discharge past-due amounts in a Chapter 7 case. However, you can erase only the amount owed up to the bankruptcy filing date. You'll remain responsible for any amount incurred after you file for Chapter 7 bankruptcy.

For more information, read Preparing for Bankruptcy: What to Do With Bank Accounts, Automatic Payments, and Utility Deposits.