From the very first day a debtor files their bankruptcy case, they receive protection from the “automatic stay,” which is a court order that prevents most creditors from taking any debt collection efforts against the debtor. This protection lasts through the debtor’s bankruptcy case, unless a creditor receives court permission to “lift the automatic stay” and pursue the debt. This is typically only allowed in special circumstances such as where the debtor is using, or possessing, valuable property used to secure a debt owed to the creditor for which the debtor is not fairly compensating the creditor, to the detriment of the creditor’s rights (i.e. driving a car around with a loan against it and not making payments).
Even though the creditors are not allowed to pursue the debt against debtor while the automatic stay is in effect, this doesn’t mean that creditors are forced to continue doing business with the debtor. Debtors can expect that their credit cards, charge accounts, and lines of credit will be closed by the creditor after filing for bankruptcy. Creditors who provide the debtor services, such as cell phone and internet companies, may opt to discontinue further service to the debtor if the debtor owes them for past-due services. Even medical providers may stop providing the debtor medical services if the provider is owed debt incurred prior to the bankruptcy, although it is illegal for the provider to deny emergency medical services. But what about utility providers?
People who live in extreme climates, like Minnesota, are in jeopardy of experiencing very negative consequences if they lose their power or heat sources. Due to these considerations, the Federal Bankruptcy Code provides special protections for debtors in relation to their utility services. When the debtor files for bankruptcy, the utility service provider cannot discontinue providing services to the debtor, even when the debtor owes a significant of past-due debt to the utility company. However, the debtor must pay their bills, as they come, while in the bankruptcy in order to continue to enjoy the right to maintain their utility service.
In order to ensure to the utility company that the debtor will pay their bills during the bankruptcy, the Bankruptcy Code requires that the debtor make “adequate assurance” that they will continue paying their bills. The debtor’s adequate assurance of future payments could be a cash deposit, future prepayment for utility services, surety bond, or any other form of security that is mutually agreed upon between the debtor and the utility company. If the debtor is unable to furnish adequate assurance to the utility company within 20 days of filing their bankruptcy case, the creditor may then discontinue utility services. For this reason, it is very prudent for the debtor to quickly contact the utility company after filing their case to work out an agreement for provision of adequate assurance. If the debtor and utility company cannot agree on the amount of adequate assurance that is required to continue the utility services, either the debtor or utility company can file a motion asking the bankruptcy court to determine what the adequate assurance should reasonably be in order to prevent discontinuation of services.
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This is a brief overview of how bankruptcy law impacts utility services and other service providers. When considering filing for bankruptcy, a person should consult with an experienced bankruptcy attorney to ensure they best understand how filing for bankruptcy will impact their particular circumstances. See us at LifeBackLaw.com!
