In my experience, one of the most underused provisions of the bankruptcy code involve the ability to discharge utility bills with very little consequence to the debtor.
In a Chapter 7 case, utility bills are nearly always classified as unsecured debts, and are discharged 100% simply by listing them on Schedule F accompanying a voluntary petition. In Chapter 13 bankruptcy, it is typical to propose a plan that pays utilities only pennies on the dollar, sometimes as little as 1%.
Yet debtors contemplating bankruptcy are quite hesitant to “include” utility bills with their filing. This is true though even small debtors often owe hundreds of dollars in back payments, and if they are discharged in bankruptcy, which they will be, often pay for the legal fees to file the bankruptcy all by themselves.
Debtors often have three inter-related worries concerning how utility bills are handled in bankruptcy court. First is will service be shut off? Second is will future service be denied? Also worrying to debtors is future service being contingent on payment of large deposits.
Bankruptcy doesn’t cause utility shut-offs, it prevents them. Filing a case sets an “automatic stay” into action, which makes it an offense to shut off service as of the date the case was filed. The debtor doesn’t have to do anything special to get this protection — that’s why it’s automatic. If the utility “misses” the notice of the case (accidentally or on purpose) and shuts off service a few days into the case, it has to come back out and turn it on again — with no charge to the debtor. If the violation appears to be deliberate, the utility can be fined by the bankruptcy judge.
Denial of future service can also be considered a violation of the automatic stay. In the real world, it just doesn’t happen. If the debtor lists a utility bill on a bankruptcy petition, the standard response is to zero out the balance and issue a new account number. Debtors should be aware that they will have to pay for services received after the date of the case filing, however.
The bankruptcy code does allow utility companies to demand a deposit for future service, however. But for debtors in Massachusetts, there is no worry here either, as state regulations prohibit the use of deposit in most instances. One exception is city-owned utility companies, like the Wakefield Municipal Light Department, who can charge deposits. Even then, they are not required to.
New Hampshire debtors face a murkier situation, as there is no specific state regulation of deposits, but in practice they enjoy something of a spillover effect from the Massachusetts rule, as some companies in southern NH are doing business in both states and are just not set up to collect deposits.
Debtors contemplating bankruptcy can and should list as many utility bills as they have on their filing petitions. Doing so will often pay for the case all by itself.