Bankruptcy, Utilities and the Poor

One of the most common reasons that my agency files bankruptcy for clients is to preserve utility service.  The LIHEAP program provides assistance to many of our clients, but not nearly enough of them.  If a client is behind on utility bills, we can often get them through one winter with some combination of energy assistance, charity and a payment plan.  For many clients though, this only works for one hard winter, or maybe two mild ones, and at some point bankruptcy is the only way to keep or restore utility service.

We are under no illusion that this is anything but a band aid.   Indeed, this is one area where we don’t reject a case even though it is clear that bankruptcy isn’t a long term solution.   There are many other cases where we counsel the client that bankruptcy is not indicated because the client’s income just isn’t enough to live on, so within a year or two the client will be heavily in debt again, without the option of filing bankruptcy.   But when the option is no heat in a Chicago winter, there’s really no choice.

But there should be another choice.  When I first moved to Chicago there was a percentage of income plan (PIP) for heating bills.   For whatever reason, that program was abolished.   Now we accomplish the same result through bankruptcy.   This is worse for everyone.   The cost of unpaid heating bills is still shifted to the other utility customers.  It takes much more of our time and money for an attorney to file  bankruptcy than for a paralegal to help a client qualify for a PIP.   The client can only do this once every eight years, up from once every six years.    While a PIP requires the client to pay the specified percentage of income every month, which keeps the client in the habit of paying the utility, the bankruptcy solution rewards the client who manages to pay the least amount possible.  And the client has a bankruptcy on her credit record, which can hurt her chances of renting an apartment. 

I haven’t read the Porter and Thorne paper on the failure of bankruptcy’s fresh start, but this may be yet another example that supports what I take is their thesis -- that bankruptcy is a very incomplete solution to problems that initially present themselves as debt problems.