Can Bankruptcy Stop a Philadelphia Utility Shutoff or Tax Lien?

When you file a bankruptcy petition, you get an “automatic stay.” This halts collection efforts from creditors and gives you breathing room. While the stay is in place, they cannot call you, threaten you, or initiate other collection or enforcement efforts. But what about utility bills and tax liens?

Utility bills aren’t the same as debt, because each month a new service is provided and a new payment is issued. While they are not strictly covered under the automatic stay like other debts are, some rules can help prevent a shutoff, at least for a while. Similarly, tax liens can continue to be calculated and move forward, but they cannot actually go into effect or be applied until your automatic stay ends.

For help stopping shutoffs and liens, call the Philadelphia bankruptcy attorneys at Young, Marr, Mallis & Associates at (215) 701-6519.

How Bankruptcy Affects Utilities

Utility debt is very common among people filing for bankruptcy. While bankruptcy can help you regain control over unpaid bills you currently have, you may still be responsible for new utility bills you continue to accrue as your bankruptcy case progresses.

How an Automatic Stay Stops Collections

As soon as you file your bankruptcy petition in court, an automatic stay is put in place. This is a court order to stop collection efforts. You can show the creditor proof that you filed for bankruptcy, and they have to stop everything they’re doing to try to get money from you.

This applies to all kinds of debts and collection efforts, and it can stop many of the enforcement mechanisms that creditors use. For example, wage garnishment can be stopped, forced sale of your residence can be stopped, and liens can be stopped from going into use.

But while it is powerful, an automatic stay doesn’t stop everything.

Does the Automatic Stay Apply to Utility Bills?

An automatic stay sort of applies to utility bills. In the sense that back payments are debts you now owe the utility company, they become creditors and can try to enforce the back payments through collections efforts. This can negatively impact your credit score and lead to collections, and all of those can be stopped like with any other creditor.

However, utility companies also have ongoing contracts with you. You pay them each month for the services they rendered, and a new bill will come around, likely before your automatic stay ends. Are they expected to continue services while you rack up more debt?

This is all a bit different from something like a debt to a mortgage company or credit card company, where there are no additional services they render, and interest continues to accrue while you aren’t paying.

Can Utilities Be Stopped if You File for Bankruptcy?

Utilities services are governed by the rules of 11 U.S.C. § 366. This law puts two major requirements on the utility company when you file bankruptcy proceedings:

1. They cannot stop service to discriminate against you solely because you filed for bankruptcy. This is impermissible discrimination.
2. They cannot stop service at all until 20 days have passed and you haven’t taken steps to pay future bills.

The antidiscrimination protections are tough to enforce, since they can potentially point to other excuses, like the fact that you are not paying them. But if you follow all the necessary steps for option two, then you can halt shutoffs.

Adequate Assurance of Payment

Section 366(b) stops shutoffs if you have given the utility company “adequate assurance of payment.” This means setting up a plan with them to pay your ongoing bills and figuring out how to pay past bills. It usually requires a deposit or other surety.

You can also have the court modify the amount you have to pay, potentially helping you make adequate arrangements to avoid a shutoff. Our Pennsylvania bankruptcy lawyers can help you arrange these kinds of things when possible.

You may also need to stay in touch with them and follow through with your promises, or else they can eventually shut off your utilities under this section.

How Are Water and Sewer Debts Treated in Bankruptcy?

Water and sewer utilities are considered too essential to be shut off simply because you file for bankruptcy. While these utilities can eventually be shut off for non-payment, several methods are available to help you keep them on.

Water Utility Debts

Water is too fundamental to be shut off because someone is experiencing financial hardship. If you are behind on water utility payments, Philadelphia allows you to apply for assistance. If approved, you may be granted a 30-day window of protection from having your water shut off. Not only that, but your water may not be shut off while your application is pending. This may buy you the extra time you need to seek legal help.

You may also request a payment plan to help you catch up on past-due water bills. You must first pay a 25% down payment to get started, and you must be able to pay your debts in full within 6 to 12 months.

If you need to have access to water for health reasons, you can request a medical delay. You may be protected from having your water shut off for 30 days, and you must present a doctor’s note stating that you have an illness and how long it will take you to recover.

Sewer Utility Debts

Water and sewer utilities are often referred to separately, but they are largely connected. Both are part of your water service. Sewer utilities revolve around how the city handles wastewater. If you are connected to the city sewer, as most Philadelphians are, you risk having your sewer shut off for non-payment.

Much like water utilities, sewer utilities are important for sanitation and health. You may be able to work with the utility company to keep your water and sewer on while you handle your unpaid debts.

How Bankruptcy May Affect Tax Liens in Philadelphia

Tax debt is another common problem among those filing for bankruptcy. While bankruptcy can temporarily halt the government’s attempts to collect these debts, and some debts may be discharged, you may still be responsible for new debt accrued during your case.

Can Tax Liens Be Discharged?

Generally, bankruptcy does not eliminate tax liens on your property. If you file for bankruptcy, you may be able to regain control over your finances, but the tax lien will not be discharged, and you may still be responsible for payment.

Ideally, if you file for Chapter 7 bankruptcy and the property subject to the tax lien is liquidated, the money from the liquidation is used to pay the lien. If you file for Chapter 13, you may repay the tax debt and eliminate the lien under the terms of a court-approved payment plan.

In short, a tax lien may not be discharged through bankruptcy, but bankruptcy may put you in a better financial position to pay the tax debt and remove the lien.

Can the Government Create Tax Liens While I’m in Bankruptcy?

While an automatic stay might stop tax collection efforts against you, the government can take proactive steps to continue with collections on its end. They can’t enforce those tax collection efforts against you while the automatic stay is in place.

This ultimately means that they can start the process of obtaining a lien, calculate liens, and then hit pause. Those liens would only take effect and attach once the automatic stay ends.

This also does not apply if the tax debt in question won’t be discharged under your bankruptcy. For example, new tax debts that arose while you were in bankruptcy proceedings aren’t covered under the existing bankruptcy petition.

Because of this, it is important to stay on top of new tax payments, withhold the proper amounts at work, and avoid going into additional tax debt during and after bankruptcy.

When is My Tax Debt Discharged?

Generally, most tax debts cannot be discharged through bankruptcy. However, unpaid income taxes may be eligible for discharge. If you have unpaid income tax debt, it might be eligible for discharge. However, other tax debts are likely ineligible, and you may still be responsible for payment after your bankruptcy case is over.

At the end of your bankruptcy case, whether you paid through Chapter 13 or underwent liquidation through Chapter 7, the debts will be paid or discharged. That includes the tax debts you went into bankruptcy with.

However, new tax debts are not covered under this. If liens were created to cover your new debts, they can go into effect and lead to property being seized under those liens.

Which Bankruptcy Stops My Utility and Tax Debt Collections?

Most individuals and couples filing for bankruptcy will do so through Chapter 7 or Chapter 13. Chapter 11 might sound familiar, but this is usually a business bankruptcy.

In Chapter 7, you can only apply with a low income level. Instead of paying back debts as you go with your income, assets are liquidated to help cover your debts, and remaining eligible debts may be discharged. With Chapter 13, you typically have a higher income and can allocate that toward one payment to pay off debts as you go.

In both cases, automatic stays are granted. In addition, these other rules about getting 20 days to give assurances for utilities also apply to both types of bankruptcy.

FAQs About How Bankruptcy Affects Utilities and Tax Liens in Philadelphia

Does Bankruptcy Prevent My Utilities From Being Shut Off?

Filing for bankruptcy may help keep your utilities on for the duration of the automatic stay imposed by the court. However, once your bankruptcy case is over, the utility company may still shut off utilities based on non-payment of new debt accrued after you filed for bankruptcy.

Can My Unpaid Utilities Be Discharged Through Bankruptcy?

Yes. Depending on how you file for bankruptcy, debts for unpaid utilities may be discharged, and you may no longer be liable for payment. Chapter 7 may help you have debts discharged, while Chapter 13 focuses on paying debts through an aggressive payment plan strategy.

How Can I Stop Utility Companies From Pursuing Collections Against Me?

Filing for bankruptcy results in an automatic stay that prevents utility companies from taking legal action against you to recover debts. If you do not want to file for bankruptcy, an attorney can help you contact the city or the utility company directly to see if a different arrangement, such as a payment plan, can be worked out.

Can I Get Rid of Tax Liens Through Bankruptcy?

No. Tax liens are not discharged after you file for bankruptcy. However, the automatic stay that comes with bankruptcy prevents the IRS and the state government from imposing new tax liens while your bankruptcy case is pending.

Which Bankruptcy Chapter Helps with Tax Liens and Utility Debt?

The best bankruptcy option depends on your assets and specific needs. Many people with few or no assets file for Chapter 7, while those with a steady income and assets they wish to protect often file for Chapter 13. While neither will discharge a tax lien, they may help you regain financial control so you can pay the lien off.

What Happens to Utility or Tax Debts Accrued After I File for Bankruptcy?

Debts for utilities or unpaid taxes that accrue after you file for bankruptcy are not included in the case and may persist after your bankruptcy case is complete. However, creditors cannot take legal action over these new debts until after the automatic stay expires.

Call Our Bankruptcy Lawyers in Pennsylvania Today

Call (215) 701-6519 for a free case review with Young, Marr, Mallis & Associates’ Berks County, PA bankruptcy lawyers.