Can a Utility Company Discontinue Service for Failure to Pay Post-Petition Bills

By: David P. Griffin
St. John's Law Student
American Bankruptcy Law Review Staff

Recently, in Weisel v. Dominion Peoples Gas Company (In re Weisel),[1] a Pennsylvania district court held that a utility company could terminate a chapter 13 debtors’ gas service after the debtors defaulted on their post-petition contract, without seeking either leave of the court or relief from the automatic stay.[2] The debtors listed in their schedules an unsecured debt owed to the gas utility company for pre-petition services.[3] As a result of the bankruptcy petition, the utility company closed the debtors’ pre-petition account.[4] At the same time the utility opened a new post-petition account for the debtors, after the debtors posted a deposit.[5] The utility continued to provide service under the contract until the debtors amassed a post-petition delinquency.[6] After the post-petition default, the utility company provided proper notice to the debtors pursuant to state law and terminated gas utility services, without first seeking court approval.[7] The bankruptcy court held that the gas company had not violated section 362(d) of the Bankruptcy Code by terminating debtors’ post-petition gas service without obtaining relief from the automatic stay because the debtors had failed to provide adequate assurance of payment within the twenty day period set forth in section 366(b).[8] On appeal, the district court held that the gas utility company was permitted to terminate service, albeit for different reasons than the bankruptcy court. Specifically, the district court allowed the utility to unilaterally terminate gas service because section 366 allows a utility to terminate service to debtors who have posted adequate assurance, but have subsequently failed to make post-petition payments on the utility service.[9]

 In its opinion, the court noted that it is “well-established” by current case law that section 366 permits a utility to terminate service to a debtor who has “posted adequate assurance but fails to make post-petition payments on the utility service”.[10] So long as the utility complies with state termination procedures, the district court held that the utility services of a delinquent post-petition debtor can be terminated without seeking relief from the automatic stay.[11] In supporting its conclusion, the district court relied on Begley v. Philadelphia Electric Co.,[12] a Third Circuit case that held section 366(a)[13] only prohibits terminations which are issued “solely on the basis” of failure to pay a debt incurred prior to the bankruptcy order.[14] Thus, utility companies are not barred by section 366(a) from terminating service for failure to pay post-petition bills.[15] The district court also relied upon the Sixth Circuit case Robinson v. Michigan Consol. Gas Co.,[16] which similarly held that a utility company could terminate service either for a failure to provide adequate assurance of payment for post-petition service or for failure to make timely post-petition payments.[17] 

In re Weisel will have significant implications for post-petition debtors who provide adequate assurance pursuant to section 366(b), but subsequently fail to make timely post-petition payments. Post-petition debtors will be subject to termination of services, just like any other utility customer, for failure to pay post-petition utility bills.[18] Under current law, a utility can refuse service to a post-petition debtor for any reason that would be a suitable reason for termination under nonbankruptcy law, with the only exception being nonpayment for pre-petition services.[19] So in the future, debtors should be sure to be especially diligent in paying post-petition utility bills.