- Handling Bankruptcy, Foreclosure and Receiverships When Collecting on Utility Accounts
- December 17, 2012 | Author: David Brown
- Law Firm: Weltman, Weinberg & Reis Co., L.P.A. - Cleveland Office
When a debtor seeks protection through bankruptcy, or a competing creditor files for a foreclosure or for the appointment of a receiver, it can drastically alter the rights of utility providers. It’s important for utilities to know and understand what rights they have in these situations.
First, before any of these events occur, it’s imperative that utility companies closely monitor customer accounts to ensure timely payment. If timely payments are not made, utility companies need to apply consistent collection strategies - including exercising the right to promptly terminate services if any payment is overdue.
In the event a debtor files for bankruptcy protection under any chapter of the United States Bankruptcy Code, 11 U.S.C. 366 applies to limit the rights of all creditors, including utilities. The debtor continues to remain liable for the utility services provided after the bankruptcy filing, but they may be relieved from liability for past utility services by the bankruptcy court. Of course, a stay is imposed as to the collection of all past due balances as of the date of the filing. Once a bankruptcy is filed, it’s best for utility companies to take a somewhat passive role with respect to the termination of services as 11 U.S.C. 366(a) makes clear that:
Except as provided in subsections (b) and (c) of this section, a utility may not alter, refuse, or discontinue service to, or discriminate against, the trustee or the debtor solely on the basis of the commencement of a case under this title or that a debt owed by the debtor to such utility for service rendered before the order for relief was not paid when due.
In limited circumstances, utility companies can terminate service to the debtors under 11 U.S.C. 366(b). Under this section, utility companies can alter, refuse or discontinue services if neither the trustee nor the debtor furnishes adequate assurance of payment within twenty days of the date of the order for relief. This remedy can only be applied to services provided after relief was granted. To be sure, a utility company can only exercise its rights under 11 U.S.C. 366(b) when a debtor fails to make an adequate assurance of payment. A debtor can make an adequate assurance of payment by providing a cash deposit; a letter of credit; a certificate of deposit; a surety bond; a prepayment of utility consumption; or any other form of security that is mutually agreed on between the utility and the debtor or the trustee. In the case of a bankruptcy, it’s best for utility companies to retain bankruptcy counsel to help guide them through the heavily regulated process.
In foreclosure situations, the homeowner remains liable for utility accounts. The problem is, determining who owns the home. Ownership may depend on which stage the home is at in the foreclosure process. For instance, a homeowner who remains in the home during the foreclosure process and before a forced sale will remain liable to utility companies for the utilities provided. Homeowners who move out also remain liable for the utilities provided, but it is in the best interest of utility companies to terminate service after they learn that a home is vacant. Leaving the service on could lead to theft of services, damage, possible personal injury and greater losses incurred by the utility company.
In Ohio, the communities of Berea, Canton, Cincinnati, Cleveland, Cleveland Heights, Euclid, Maple Heights, Olmstead Falls, Parma, South Euclid, Toledo, Twinsburg and Warrensville Heights have all passed legislation requiring vacant property registration. In these communities, the owners of vacant properties are required to register said properties with the city - usually within 30 days of the vacancy. This is a great starting point for utility companies that are trying to determine whether a building is occupied or vacant. In fact, utility companies operating in these communities should request that they be notified each time a new vacant property is added to the registry.
Utility accounts on bank owned properties become the responsibility of the bank. However, many times, the listing real estate agent will be listed on the account and reimbursed by the bank. It’s important for utility companies to communicate with banks, listing agents and homeowners during foreclosure situations as ownership and occupation can change quickly.
To stay informed regarding ownership, utility companies should monitor all available public information notices. Most jurisdictions require notices of foreclosures to be published in a local newspaper and many maintain websites which provide access to the same information. Utility companies can also contact settlement agents on the day of any scheduled sale. A settlement agent will be able to tell the utility whether a sale occurred and who the new owner is. If you establish a relationship with the various settlement agents in your area, they will eventually make you part of their notice process. The same can be done with banks and other lending institutions. By developing a relationship with the major lenders in the area, utility companies may be able to obtain accurate information regarding ownership much quicker than if it conducted its own investigation or title search.
Finally, in situations where a receiver is appointed, the court order appointing a receiver will govern liability for utility accounts. Usually, receivership orders require receivers to maintain and pay any utility expenses that arise after the receiver is appointed. Receivers also are usually tasked with the sole responsibility of entering into new contracts for service that the receiver deems necessary to operate the property. Outstanding fees from before the receiver’s appointment remain the responsibility of the owner, but the receiver does have the option of satisfying outstanding obligations if he feels it’s in the best interest of the property. In these situations, utility companies are best served by remaining in close communication with the receiver.
Clearly, determining ownership and control of the property being services is key in each of these situations. Utility companies that manage to stay informed will make out the best. It’s important for utility companies to build relationships with trustees, banks, settlement agents and receivers so that they will be well informed - and hopefully involved - in the event of any ownership changes. As always, your attorneys at Weltman, Weinberg & Reis are available to assist you in the event of delinquent accounts involving any of these situations.