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What Happens to Utility Expenses that You Accrue After You File a Chapter 7 or a Chapter 13 Bankruptcy?

§366 of the Bankruptcy Code governs matters relating to Utility companies, like Consumers, Bay City Power & Light and DTE. Typically, the utility company will close out the Pre-Petition account and all charges that accrued prior to filing your bankruptcy will be included in that account.

§366(a) provides the general rule that a utility may not alter, refuse, or discontinue service to a debtor solely on the basis of the commencement of a case under this title or that a debt owed by the debtor to such utility for service rendered before the order for relief was not paid when due. This general rule, however, is subject to the conditional language set forth in §366(b), which provides that a utility may discontinue service if neither the trustee nor the debtor, within 20 days after the date of the order for relief, furnishes adequate assurance of payment, in the form of a deposit or other security, for service after such date. On request of a party in interest and after notice and a hearing, the court may order reasonable modification of the amount of the deposit or other security necessary to provide adequate assurance of payment.

By its language, §366(b) is self-executing and no formal proceeding by the utility is necessary to invoke the adequate assurance requirement. Furthermore, the anti- discrimination language of §366(a) is “subject to” the language of §366(b) in the sense that a utility is entitled to adequate assurance of payment under §366(b) regardless of the debtor’s prepetition payment history or whether the utility generally requires new customers to post a deposit.

In a Bankruptcy proceeding, the date of filing of the petition is the date of the order for relief.

Of course, nothing in §366(b) requires a utility to discontinue service if adequate assurance of payment is not furnished within the 20 day period. Here, the utility may voluntarily elect to continue providing service to the you. So, the bottom line is that §366(b) does not require relief from the “Automatic Stay” before utility service can be terminated.

So, under §366, a utility may not terminate your service for failure to pay pre-petition arrearages. However, a utility may terminate your account if you fail to post adequate assurance of payment for post-petition services within 20 days of filing your Bankruptcy.

The restriction on termination in §366(a) bars only those terminations which sue  “solely  on  the  basis”  that  a  debt  incurred  prior  to  the filing of the Bankruptcy petition. The utility will be allowed to commence termination procedures once a post-petition payment is missed, despite the prior security or “assurance” deposit. So – once you allow post-petition utility debts to become delinquent – the utility may commence termination proceedings without having to seek relief from the Automatic Stay.

The purpose of §366 is to prevent the threat of termination from being used to collect prepetition debts while not forcing the utility to provide services for which it may never be paid.

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