Why is this? What about water bills? What happens to my utility service in Livonia, Detroit, Westland, Redford, Inkster, Farmington, Northville, Ann Arbor, or anywhere else in Michigan when I file for bankruptcy? Will the utility provider shut my service off?
These are common questions regarding utility bills in bankruptcy that this Article will attempt to answer.
First, why are utility bills dischargeable in Michigan bankruptcy?
Michigan Utility Bills: Just Another Unsecured Debt
The easiest debts to discharge in Chapter 7 or Chapter 13 bankruptcy are so-called “unsecured” debts.
“Unsecured” debts, simply, are debts that have not been “secured” with the pledging of any property as a collateral in the loan agreement.
For example, your home mortgage is (likely) a secured debt because the stand mortgage and note contracts you sign when you buy a house make the home the collateral “securing” your obligation to pay. That is, if you don’t pay your monthly mortgage installment payment, the home can be foreclosed. The collateral can be taken by the creditor, in short.
Unsecured debts have no such feature. They are not secured by anything other than your contractual promise to repay the money borrowed or owed. The creditor lending the money or providing the utility service, in this case, has no recourse available to it if you default on that promise but to sue you for the money owed.
Or, potentially, as is the case with utility services, to shut off your electric or gas service.
In a Chapter 7 bankruptcy in Michigan, unsecured debts are totally discharged without any repayment to the creditors, with some notable exceptions.
In a Chapter 13 bankruptcy, unsecured debts are paid last. They only receive whatever is left over after higher priority creditors are paid (and your Michigan bankruptcy lawyer!). Whatever they are still owed “on paper” afterward is totally discharged. Just as it would be in a Chapter 7 bankruptcy.
There are unsecured debts that are not discharged in a Michigan bankruptcy. Child support and recent tax debts are notable examples.
Utility bills are not among these exceptions.
Filing Bankruptcy with Electric & Gas Utility Bills Owed?
That said, the easiest scenario is one in which you owe money to DTE or Consumers Energy for past utility bills owed—for a home or apartment in which you no longer reside.
But if you do still live in the home? And you would still like to receive electric and gas service going forward? Does filing for bankruptcy with utility bills owed mean that the power company can simply cut off your service?
No, it does not.
Under Michigan state law, your service cannot simply be disconnected because you file for Chapter 7 or Chapter 13 bankruptcy.
The utility provider may require you to pay a security deposit upon opening the new account for you.
This is permitted.
However, under Bankruptcy Court case law in the Eastern District of Michigan, the amount of the security deposit must be “reasonable.”
If it is several hundred dollars or more, your Metro Detroit bankruptcy attorney will be entitled to file a motion on your behalf for a court order lowering it.
This is one of the benefits of working with an experienced bankruptcy attorney when you owe back-due utility bills.
Water Utility Bills: Slightly More Than Unsecured Debt
What about city or Oakland County, Wayne County, Macomb County, or Washtenaw or Genesee County water bills?
Water bills are not unsecured debts the way in the way that electric and gas utility bills are.
Water utility bills and charges “run with the land.” That is, they are not personal debts that attach to you individually and your Social Security Number.
If you leave the residence where you incurred the water utility bill, the obligation to pay that bill remains with the owner of the residence.
If the residence was a rental residence, your landlord will be responsible for the water utility bill. (However, you may be responsible for reimbursing or paying the landlord for that water bill by way of your lease agreement … In which case, the debt owed to your landlord will also be dischargeable as an unsecured debt in your Michigan bankruptcy.)
If you owned the residence and have abandoned, surrendered, or otherwise lost the home to foreclosure, it is no longer a personal debt owed. Your bankruptcy attorney may recommend that the utility bill still be listed among your other debts in your bankruptcy petition, but this will be a “better safe than sorry” measure.
With regard to water utility bills, it is important to remember, however, that your county can and will foreclosure on your home because of unpaid water utility bills. This is true unless Michigan state law is constraining or limiting the county’s foreclosure options at any given time.
If you want to keep your home but are behind in water utility bill payments, you may be able to negotiate a payment plan with your city or county. Otherwise, a Michigan Chapter 13 bankruptcy will allow you to catch those utility bills up over 3-5 years in your Chapter 13 payment plan.
Talk To A Livonia, Michigan Bankruptcy Attorney Now
If you are behind on utility bill payments and are considering filing for bankruptcy in Livonia, Westland, Inkster, Detroit, Redford, Farmington Hills, Ann Arbor, Monroe, Southfield, Flint, Bay City, and elsewhere in southeast Michigan, it is essential that you consult an experienced attorney.
A bankruptcy lawyer will be able to tell you at your initial consultation, in most cases, whether a specific lawsuit judgment vexing you will be dischargeable in bankruptcy or not.
Offering free, virtual consultations and friendly, one-on-one service from Livonia bankruptcy attorney John Hilla, we will ensure that your matter is handled properly, competently—and with kindness.