When you are behind on payments to numerous creditors, you may decide to prioritize some payments over others, such as utility bills. Having your utilities shut off can be a disaster, especially if there are children in the household. So, you may be faced with a difficult decision when it comes to deciding which bills to pay.
However, it’s important to keep in mind that paying one creditor and not another can be seen as preferential treatment should you decide to file for bankruptcy. We understand though, that keeping the lights on and the water running feels more important than paying off credit card debt. In practice, it would be very rare for a Chapter 7 Trustee to pursue a utility company for a preference, so prioritizing necessary utilities is a good plan.
If you are feeling overwhelmed and don’t have enough money to pay all of your creditors, filing for bankruptcy is likely your best option if you want to avoid having your utilities shut off or miss payments for other debts. Generally, most utility companies will give you several weeks’ warning before disconnecting your service. This gives you time to get your bankruptcy case started to avoid this from happening.
When you file for bankruptcy, an automatic stay goes into effect, which immediately halts collection efforts. This means that utility companies cannot shut off your utilities or harass you for payments. If they have already disconnected your service, they will be required to turn it back on. However, to keep the utility on, within 20 days of your filing you must provide adequate assurance that you will be able to pay future utility bills. This is generally done by providing what the law describes as a “reasonable deposit”. In our district the Courts have generally defined the “reasonable deposit” to mean three times the average monthly bill. However, this is just a guideline, and can vary from case to case.
How Are Utility Bills Handled in Chapter 7 Bankruptcy?
In Chapter 7 bankruptcy, your utility bills are considered unsecured debts and will be treated like other debts in this category, such as credit cards, medical bills, and personal loans. All of your past-due utility bills up to the point you filed will be included in the bankruptcy. Most types of unsecured debt get discharged when you file for Chapter 7. This means that your outstanding utility debts will likely be wiped out at the end of your bankruptcy.
Just as in Chapter 7, utility bills are considered unsecured debt in a Chapter 13 case as well, which includes all of your past due payments. However, unlike Chapter 7 cases, in Chapter 13 bankruptcies, a repayment plan will be agreed upon to pay off your debts. Depending on the plan and how much you can afford, all or only a portion of your utility debt may get paid off during your bankruptcy. Though discharge is not guaranteed, any remaining debts leftover at the end of your Chapter 13 bankruptcy generally get wiped out.
It’s important to keep in mind that current and future utility payments will not be discharged during your bankruptcy. After you have filed, you must continue to make payments to avoid disconnection in the future. You should have no issue continuing to receive service through your same provider so long as you keep up with payments.
At Sawin & Shea, we believe in providing compassionate and understanding representation to those struggling with debt and looking to file for bankruptcy. Facing utility shut off is scary. We can help guide you through the bankruptcy process so that you can get the relief you need to provide you and your family the necessities of life.
Keep in mind that the moment you file for bankruptcy, an immediate stay will go into effect to keep your service from being disconnected. This stay gives you time to get your finances in order and back on track during your bankruptcy case. Our attorneys have years of experience in bankruptcy cases and can help walk you through the process every step of the way. We can even offer guidance after your bankruptcy case has ended.
Contact us at 317-759-1483 or send us an email for a free consultation today!