When you suffer an unexpected medical bill or financial setback, debt can begin to accumulate. While it’s easy to fall into debt, navigating your way back to financial freedom can be incredibly difficult, and many may fall deeper and deeper into debt. As such, you may consider filing for bankruptcy to help you regain control of your finances. However, you may worry about the impact it can have on essential services like your utilities, especially if you are already behind on payments for gas, electricity, or water. If this represents your circumstances, the following blog explores whether or not bankruptcy can result in your utilities being shut off and the importance of connecting with a Memphis, TN consumer bankruptcy lawyer to represent you during this complicated process.
What Is the Automatic Stay, and How Does it Work
When you file for bankruptcy in Memphis, or anywhere in the United States for that matter, you will be granted an automatic stay under federal bankruptcy law, in accordance with 11 U.S.C § 362. Essentially, this is a court order that prohibits collection efforts against you for the duration of your bankruptcy case.
For residents in Memphis and the surrounding metropolitan areas, bankruptcy cases are generally filed in the United States Bankruptcy Court for the Western District of Tennessee, and the automatic stay will take effect the moment your bankruptcy petition is electronically submitted to that court.
What the Automatic Stay Stops
- Wage garnishment
- Utility shutoffs based on past-due balances
- Lawsuits
- Collection calls and letters
- Foreclosures
What the Automatic Stay Does Not Stop
- Victim restitution
- IRS audits (in most cases)
- Some pension loan repayments
- Domestic support obligations
- Creditors who have successfully petitioned the court to lift the stay
How Are Utility Companies Treated Under Bankruptcy Law
Protections granted under the automatic stay for utility providers differ slightly, as you generally must provide adequate assurance of future payments. Because utility service providers are different from other creditors, they have a specific bankruptcy section, 11 U.S.C § 366.
Under federal bankruptcy law, utility companies have the right to request adequate assurance of payment within 20 days of the petition. This 20-day deadline is strict, and utilities are not required to wait beyond this period. In many Memphis cases, providers will request a deposit quickly once they receive notice of the filing. Failure to provide assurance within this deadline can lead the provider to file a motion with the court to disconnect service.
The Twenty-Day Rule, Explained
- Utility companies cannot shut off service for pre-bankruptcy debts once a case is filed
- Protection typically lasts for 20 days, unless you provide adequate assurance of payment to the utility company
- Adequate assurance typically means putting down a deposit or other form of security, such as:
- Cash deposit
- Letter of credit
- Prepayment
- Any other form of court-approved security
- Utilities may shut off service if you fail to pay new bills after filing
What Happens if You Do Not Provide Adequate Assurance
- The utility company can seek court permission to terminate services
- If approved, service will be disconnected
- Bankruptcy does not eliminate the need to pay for future usage
Does It Matter If You File Chapter 7 or Chapter 13?
Both consumer bankruptcy chapters, 7 and 13, will trigger the automatic stay. However, these chapters vary significantly in how they provide debt relief and their long-term impacts for filers in Tennessee.
Chapter 7 Bankruptcy and Utilities
- A liquidation process involves the sale of non-exempt assets
- Discharges qualifying unsecured utility debt
- Required adequate assurance within 20 days of filing
- Cases generally do not exceed 6 months
- Remains on credit reports for up to 10 years
Chapter 13 Bankruptcy and Utilities
- Creates a three to five-year repayment plan to repay debts
- Past-due utility bills can be included in the plan
- Can help filers catch up on arrears over time
- Remains on credit reports for 7 years after filing
What Should Memphis Residents Know About Local Utility Providers?
For residents in and around Memphis considering bankruptcy, understanding the timing of this matter is integral. In general, you’ll find that most residents receive their utilities through:
- Memphis Light, Gas, and Water (MLGW)
- Private water or gas providers in Shelby County
Why Timing Matters in Shelby County
- Filing before a scheduled shut-off can prevent having utilities disconnected
- Proof of filing (case number) is generally required
- Local providers may request deposit payments quickly
What You Should Do Before Filing Bankruptcy to Prevent a Shut-Off?
If you are considering filing for bankruptcy, there are steps you can take prior to filing the petition with the court to reduce the risks of a utility shut-off.
Practical Steps to Protect Your Utility Service
- Confirm your shut-off date
- Gather all past-due billing statements
- Determine whether or not a deposit is required
- Continue paying current charges if possible
- Enlist the assistance of an experienced bankruptcy attorney to avoid procedural errors
Contact an Experienced Memphis Bankruptcy Attorney
At the Arnold Law Firm, our team understands how overwhelming the prospect of filing for bankruptcy can be to navigate, which is why we are ready to assist you through these difficult matters. When you are ready for a financial fresh start, contact us today to learn how we can help you reap the full benefits of this process.
