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Texas Bankruptcy - Bankruptcy & Utilities

Public utility companies, such as the electric company, the telephone company, gas or in some cases the cable company, cannot refuse or cut off service simply because you have filed for Bankruptcy and still may owe them money. However, after a period of 20 days, after filing a Bankruptcy petition the utility company can terminate service if you (the “debtor”) does not pay a security deposit or possibly provide other security that the utility bill will continue to be paid.

A utility has the right to demand that a debtor pay a deposit within 20 days to ensure the continuation of service for that utility. In some situations, the utility deposit requested to insure or assure the utility of future payment can be many times the amount of the monthly bill, so it often makes sense for a debtor to simply go ahead and pay the bill.

Federal law recognizes utilities as a public monopoly because people and businesses can't just easily go wherever they want to purchase water, electricity, natural gas, or telephone service for their home or business. As such, a utility company cannot deny service because a person or a business utilized their constitutional right to file for Bankruptcy Debt Relief from their creditors.

There are differences in how public utilities treat individuals who file for Bankruptcy as compared to businesses who file for Bankruptcy. Since individuals often have significantly less debt owed to the utility, their requirements are not always as stringent, enforced, or litigated as they can be with business debtor in a Chapter 11 business case. This doesn’t mean that utilities will just let an individual debtor or consumer debtor get out of a debt more easily or not have to post a deposit of adequate assurance, it just means that seldom does a utility cut off a consumer debtors power immediately after or during the pendency of a Bankruptcy proceeding. Under the New Bankruptcy Law debtors filing for Bankruptcy under all Chapters of the Bankruptcy Code, whether business or individuals are still protected from losing essential utility services after filing for Bankruptcy Debt Relief.

Under the Bankruptcy Abuse Prevention & Consumer Protection Act of 2005, the basic rule essentially has stayed the same in that a utility service provider may not stop, refuse, alter, or discontinue service to an existing utility customer solely because the customer (“debtor”) filed for bankruptcy protection or that customer failed to pay a prepetition (pre Bankruptcy filing) debt owed to the utility. 11 U.S.C. § 366(a). The New Bankruptcy Law does not significantly change Section 366(b), which allows a utility (without a formal proceeding before in the Bankruptcy Court) to stop, alter, refuse, or discontinue service to an existing customer in bankruptcy (under a Bankruptcy Chapter other than Chapter 11) if the customer, within 20 days after the date of the order for relief, fails to furnish adequate assurance of payment in the form of a deposit or other security for post-petition utility service. Just like before The New Bankruptcy Law if the debtor and the utility company cannot reach an agreement with respect to the type and/or amount of assurance of payment for the utility service, both the debtor and the utility company may seek an order of the Bankruptcy Court. Section 11 U.S.C. § 366(b) now applies to debtors who have filed Bankruptcy under a Chapter other than Chapter 11. There are separate rules that apply to Chapter 11 debtors for utilities.

If you or your business’s utilities were terminated or cut off prior to the filing for bankruptcy, your attorney will have to notify the utility company with proof of the filing and request the utility’s instructions to restore service and ask them to do the same. In business cases, the filing of an emergency Motion in the Bankruptcy Court which may have been part of first day motions will usually be required to attempt to maintain or restore utility service. In consumer Bankruptcy cases, utilities will most always restore the service upon notice from your attorney or the Bankruptcy Court unless it was turned on illegally (which is usually considered fraud and may not be dischargeable in Bankruptcy) or if it turns out that the particular utility service was in another person's name (who did not file for Bankruptcy).

As previously stated the utility company will probably request a deposit from you for continued service if service was cut off prior to Bankruptcy filing. The deposit remains your money, but is held by the utility company as security for service. The deposit is usually equal to approximately 2 or 3 times your average monthly utility bill. If you do not owe money to your utility companies and do not list them as a debt, then the utilities might waive the requirement for a deposit when you file. If you do owe money to the utility prior to filing for Bankruptcy you may have previously posted a deposit with them when you first ordered service. Under the New Bankruptcy Law the utility provider can now recover pre-filing utility debt by a set off against a prepetition deposit provided to the utility by the debtor without notice or leave of the Bankruptcy Court. 11 U.S.C. § 366(c)(4).

Also, keep in mind that utility services such as cable tv, internet or cellular phone services are not considered utilities since you can usually go to another service provider. Since they are not a monopoly, they are considered non-essential utilities.

At The Law Offices Of R.J.Atkinson,LLC we can answer your questions about filing for Bankruptcy and Utility service. You may be prompted to file a Bankruptcy because you may be facing a foreclosure, repossession, or other urgent motivating factor. If you have questions regarding more detailed or specific questions about Utility Service and Bankruptcy contact The Law Offices of R.J.Atkinson,LLC for a free initial consultation to answer your questions. Whether you’re in Houston, San Antonio, Austin, or Dallas, we may be able to assist you in filing for Bankruptcy Debt relief under The New Bankruptcy Law. Don’t loose everything. Call the The Law Offices of R.J.Atkinson,LLC at 800-436-9056 today.


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