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Can a Utility Company “Shut Off” my Service if I file for Bankruptcy in Michigan?

Federal bankruptcy law prohibits a utility, from “altering, refusing, or discontinuing service to, or discriminating against, a trustee or a debtor solely on the grounds that the debtor had not paid its prepetition debts when due” after a customer has filed a petition for bankruptcy. Be aware – this prohibition only applies for a limited time. Further, it only applies to delinquencies accrued before the bankruptcy filing.

This bar from cutting off services applies to any and all of the following service providers: water, electricity, gas, and phones – those services necessary to meet minimum standards of living.

The prohibition against cutting off utility services in Section 366(a) of the Bankruptcy Code is conditioned on Section 366(b), which requires that the trustee or debtor furnish “adequate assurance of payment” for services. This adequate assurrance of payment is in the form of a deposit. And, this request must be given by the utility within 20 days after the bankruptcy is filed.

The amount of the deposit may be modified by the Bankruptcy Court on request of a party in interest after notice and a hearing. If asked to modify the proposed amount of the deposit, the Court considers the facts of each case based on the “totality of the circumstances.” Factors for consideration include: any prepetition security already paid to the utility; the debtor’s payment history; the debtor’s present and future ability to pay their current expenses; the debtor’s net worth; the debtor’s cash requirements; the probability of payment; and, the degree by which the risk of nonpayment from the debtor exceeds the risk of nonpayment from the utility’s other customers. Adequate assurance does not refer to “payment” of utility debts incurred before the bankruptcy petition is filed. The automatic stay on “any act to collect, assess, or recover a claim against the debtor that arose before the commencement of” the bankruptcy petition. It applies to payments for post-petition utility services. Furthermore, an adequate assurance of payment does not require an absolute guarantee of payment for post-petition services; what is required is that the utility be protected from an unreasonable risk of future nonpayment.

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