The Rising Cost of Utility Bills and Their Impact on Filing Bankruptcy

Rising utility costs in Southeast Michigan, particularly during the colder months, and the threat of an impending disconnection or shut off, can be a deciding factor for some families in choosing to file for Chapter 7 bankruptcy. During Michigan’s cold winters, a utility shut off could be dangerous or lead to other costly issues like frozen and burst pipes. Filing Chapter 7 bankruptcy can allow families the opportunity to avoid a shut off and make arrangements to keep their utilities on while discharging some debt and getting back in good financial standing.  

Eligibility of Discharging Past-Due Utility Debt in Bankruptcy 

A family facing the difficult decision to file for bankruptcy as a means to discharge outstanding debts such as utility bills, credit card balances, and medical expenses, while keeping their utilities on and maintaining ownership of their property, can evaluate their eligibility for Chapter 7 bankruptcy using the Michigan Bankruptcy Means Test, which compares a family’s income with that of the median Michigan household income. If a family’s income is below the median Michigan household income, they are automatically eligible to file for Chapter 7 bankruptcy.  

If their income exceeds the median income, then their necessary expenses are deducted to determine their disposable income. These thresholds are in place to ensure that Chapter 7 bankruptcy is being utilized by  those who really cannot afford to pay their bills. If a family’s disposable income is too high, they may need to file for Chapter 13 bankruptcy.  

Past-Due Utility Bills in Chapter 7 Bankruptcy 

Every bankruptcy petition triggers a stay on collections for all debts, so utility companies should cease their attempts to contact you or collect on past due utility bills once you have filed. Federal law prohibits a utility company from disconnecting or refusing service to a consumer for 20 days once a bankruptcy petition has been filed, and utility companies cannot suspend a consumer’s service for filing for bankruptcy or being behind in payment when filing. This generally applies to electric, gas, water, and some phone utilities, and oftentimes excludes cable and internet bills.  

Under Michigan law, companies must give customers written notice 10 days before a shut off and must make two attempts to contact them the day prior to a utility shut off. An experienced bankruptcy lawyer may need to file an emergency petition to meet this deadline. 

Chapter 7 bankruptcy only applies to debts that exist on the day the petition is filed, meaning, from that point on it’s imperative that you keep current on your bills in order to rebuild your credit. 

Adequate Assurance in Chapter 7 Bankruptcy

You have 20 days after filing a bankruptcy petition to contact the utility companies and provide “adequate assurance” that you will be able to pay future utility bills, which can come in the form of a letter of credit, a cash deposit, or prepayment, though most utility companies require a deposit after the 20-day window in order to avoid a shut off or disconnection.  

If a deposit demand from a utility company is more than you can afford, an experienced bankruptcy attorney can petition the judge to reduce the amount or accept another form of assurance.  

Contact Gold, Lange, Majoros, and Smalarz P.C. Today

To schedule your initial consultation and case evaluation with us, please call call 248-462-7698 or contact us today.