Utilities in Bankruptcy: Will DTE or ConEd Leave You in the Dark?
Utilities owed at the time of the filing of a Chapter 7 or Chapter 13 bankruptcy are simply unsecured debts no different than credit card or medical debts. Utilities thus may be discharged in full by either Chapter of bankruptcy, without question.
However, if the home or real estate where the utility service was provided is not being surrendered in the bankruptcy, continuation of electrical, gas, water, and other basic household utilities through and after a bankruptcy may be a great concern to some consumers. While overdue utilities are not an uncommon feature of many bankruptcy filings, they are frequently not the primary focus of the bankruptcy. Rather, many people are pressured into considering bankruptcy due to other forms of debt, such as medical bills and credit cards. In those cases, the person considering bankruptcy may not even be behind in their utility payments at all.
If they are behind in utility payments, however, the debt must be listed along with all other debts owed. There is no ability to leave a debt “out of the bankruptcy,” despite a common popular misconception. In a Chapter 7 or Chapter 13 bankruptcy filing, all debts and all assets must be disclosed.
Utilities in Bankruptcy: Adequate Assurance May Be Required
Generally, utilities are bound by Michigan law not to leave your family freezing in the dark. When a Chapter 7 or Chapter 13 bankruptcy is filed and utilities are discharged, Detroit Edison (DTE) or other typical Michigan utility service providers will usually discharge the past-due balance, close your account, and then open a new account for you with a new account-number for the service proceeding forward from the date of the bankruptcy filing.
However, under the Bankruptcy Code, a utility service provider require that you provide “adequate assurance” that you will be able to pay for their utility service in the future within 20 days of filing the bankruptcy petition. While, most of the time, if the customer is fully current in their payments to the utility, the mere filing of the bankruptcy petition will not cause the providing utility to disrupt their service or demand this “adequate assurance,” the question of what “adequate assurance” actually is and how much of that assurance must be provided to be “adequate” remains for consumers who are not current in their payments.
Depending on the local practice of utilities in your area, “adequate assurance” can mean a cash deposit, a letter of credit, a certificate of deposit, a surety bond, a prepayment for future utility consumption, or some other type of security. It is not uncommon in southeast Michigan, for instance, to be required to provide a security deposit in the vicinity of $300 or so to keep electrical utilities running.
Thus, on occasion, the security deposit required for adequate assurance may actually be higher than the dollar-value of past-due utilities being discharged. A consumer filing bankruptcy may make the practical decision to simply go ahead & pay the past-due balance regardless of the eventual legal discharge of the debt at that point, if the bankruptcy is a Chapter 7 and not a Chapter 13, in which the utilities owed are being repaid over 3-5 years in a Chapter 13 bankruptcy payment plan.
If you are a Michigan resident and are considering filing for bankruptcy, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.