If you are behind in gas, electric, water, phone, or other utility payments and the utility company is threatening to shut-off your service, Chapter 7 bankruptcy can help.

No Utility Shut-Offs When You File for Bankruptcy

The bankruptcy code has a specific section that sets forth the obligations of utilities when you file for bankruptcy – it’s found at 11 U.S.C. §366.  The law prohibits utilities from altering, refusing, or discontinuing service because you filed for bankruptcy or owe back payments that will be discharged in the bankruptcy.

You Have 20 Days to Provide Assurance That You Will Pay Future Bills

There’s an important caveat to this rule: You have 20 days to provide the utility company with “adequate assurance” that you will pay future utility bills. If you don’t provide this assurance, the utility company can shut off your service.

If you don’t provide adequate assurance, can the utility automatically cut off your service without further court permission? Although the code is not entirely clear on this point, many jurisdictions operate under the assumption that the utility can do this. This means that you should come to some type of agreement with the utility or seek court intervention before the 20-day period passes.

What Is Adequate Assurance of Payment?

According to the law, “adequate assurance” can include:

  • a cash deposit
  • a letter of credit
  • a certificate of deposit
  • a surety bond
  • prepayment for future service, or
  • any other form of security that is agreed upon between the utility and you or the bankruptcy trustee.

What a utility will accept as adequate assurance depends on the particular utility and what is deemed acceptable in your jurisdiction. If you are providing a deposit, the utility probably cannot demand an amount that is greater than limits set by state utility regulations. As for other types of assurances, case law has created “guidelines.” A local bankruptcy attorney should know the views of your court, as well as the normal practices of your local utility.

Explore Other Options

Although bankruptcy can be an effective tool for preventing utility shut-offs, you should explore other options if you weren’t already contemplating bankruptcy for other reasons. For example, many states prohibit utility shut-offs during extreme weather — this may provide you with time to get current on payments. Some states have discount programs for elderly residents, residents that are ill, or low-income residents. All states must follow state notification procedures before cutting off services — if the utility failed to follow these procedures, you may be able to avoid shut-off (but will probably need an attorney to help you challenge the utility).  In many cases, nonbankruptcy alternatives for dealing with utility bills provide a quicker or better solution than bankruptcy.

Filing an Emergency Bankruptcy

If you are facing imminent shut-off of a vital utility, you may have to file bankruptcy immediately. You can file a bare bones petition to start the process, and then file the rest of the bankruptcy documents within 14 days. This is often called an emergency bankruptcy. To learn more, see Nolo’s article Emergency Bankruptcy Filing.