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Bankruptcy, Utilities and the Poor

posted by David Yen

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.   

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  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.

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