§ 136.9 — Utilities after BAPCPA

Revised: March 22, 2010

[1]

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)1 made changes to the utility stay in § 366 that could impact priority claims and other aspects of Chapter 13 practice.

[2]

Detailed elsewhere,2 under § 366(b) a Chapter 13 debtor has 20 days after the petition in which to “furnish[ ] adequate assurance of payment” for utility services.3 If the debtor does not furnish adequate assurance of payment within 20 days of the petition, a utility can alter, refuse or discontinue service.4 Under § 366(b), adequate assurance of payment can take the form of “a deposit or other security.”5 Prior to BAPCPA, it was not uncommon for debtors to offer an administrative expense priority as assurance of payment for § 366(b) purposes. Because most courts treat administrative expenses as priority claims in Chapter 13 cases6—and the plan must provide for full payment of priority claims to accomplish confirmation7—an offer of administrative expense priority means that utility bills during the Chapter 13 case must be paid in full.

[3]

BAPCPA amended § 366(c) to substantially restrict what constitutes “assurance of payment” to ensure the continuation of utility services.8 For example, § 366(c)(1)(B) now states, “For purposes of this subsection an administrative expense priority shall not constitute an assurance of payment.”9 Section 366(c)(3) prohibits the bankruptcy court from considering “the absence of security” before the petition or the timely prepetition “payment by the debtor of charges for utility service” when a party in interest requests a hearing with respect to assurance of payment. These new provisions are a huge departure from pre-BAPCPA practice.

[4]

The issue becomes, are the BAPCPA changes to § 366(c) applicable in Chapter 13 cases? Section 366(c)(2) specifically authorizes a utility to alter, refuse or discontinue utility service in a case “filed under chapter 11” if the utility does not receive adequate assurance of payment “during the 30-day period beginning on the date of the filing of the petition.”10 There is contrary legislative history,11 but good arguments from accepted canons of statutory construction support the view that § 366(c) is only applicable in Chapter 11 cases. If this interpretation stands up, the restrictive definition of assurance of payment in § 366(c)(1)(A) and the limitation on evidence in § 366(c)(3) would not be applicable in Chapter 13 cases.

[5]

If the BAPCPA changes to § 366 are not applicable in Chapter 13 cases, useful arguments from negative implication arise that could impact the management of utilities and priority claims in Chapter 13 cases. For example, that Congress acted to exclude administrative expense priority as an available means of furnishing adequate assurance of future payment in Chapter 11 cases only suggests that administrative expense priority remains available as a form of adequate assurance of future payment in cases under other chapters. This negative implication validates or at least supports the pre-BAPCPA practice that Chapter 13 debtors offer administrative expense priority for postpetition utility bills as assurance of future payment. Similar arguments can be made with respect to other aspects of § 366(c).12

[6]

Unresolved by the BAPCPA amendments to § 366 is the question whether unpaid postpetition utility bills can become administrative expenses when neither the plan nor the order of confirmation overcomes the vesting effect of confirmation under § 1327(b).13 The predicate for allowance of an administrative expense under § 503(b)(1) is that the utility bill is an “actual, necessary cost[ ] and expense[ ] of preserving the estate.”14 Although there is much controversy whether confirmation of a plan marks the end of the estate under § 1327(b),15 in districts in which the estate ceases to exist at confirmation, it may be difficult for a utility to win the argument that a postconfirmation utility bill was a necessary cost or expense of preserving that nonexistent estate. The utility supplier might argue in the alternative that an unpaid postpetition utility bill is a postpetition claim under § 1305.16


 

1  Pub. L. No. 109-8, 119 Stat. 23 (2005).

 

2  See §§ 91.1 [ Utility Stay and Continuing Service ] § 68.1  Utility Stay and Continuing Service and 437.1 [ Utility Stay Uncertainty ] § 68.2  Utility Stay Uncertainty after BAPCPA.

 

3  11 U.S.C. § 366(b), discussed in §§ 91.1 [ Utility Stay and Continuing Service ] § 68.1  Utility Stay and Continuing Service and 437.1 [ Utility Stay Uncertainty ] § 68.2  Utility Stay Uncertainty after BAPCPA.

 

4  See §§ 91.1 [ Utility Stay and Continuing Service ] § 68.1  Utility Stay and Continuing Service and 437.1 [ Utility Stay Uncertainty ] § 68.2  Utility Stay Uncertainty after BAPCPA.

 

5  11 U.S.C. § 366(b), discussed in §§ 91.1 [ Utility Stay and Continuing Service ] § 68.1  Utility Stay and Continuing Service and 437.1 [ Utility Stay Uncertainty ] § 68.2  Utility Stay Uncertainty after BAPCPA.

 

6  See § 99.1 [ What Claims Are Priority Claims? ] § 73.2  What Claims Are Priority Claims?.

 

7  See 11 U.S.C. § 1322(a)(2), discussed in § 98.1 [ Plan Must Provide Full Payment ] § 73.1  Plan Must Provide Full Payment.

 

8  See §§ 91.1 [ Utility Stay and Continuing Service ] § 68.1  Utility Stay and Continuing Service and 437.1 [ Utility Stay Uncertainty ] § 68.2  Utility Stay Uncertainty after BAPCPA.

 

9  11 U.S.C. § 366(c)(1)(B), discussed in §§ 91.1 [ Utility Stay and Continuing Service ] § 68.1  Utility Stay and Continuing Service and 437.1 [ Utility Stay Uncertainty ] § 68.2  Utility Stay Uncertainty after BAPCPA.

 

10  11 U.S.C. § 366(c)(2), discussed in §§ 91.1 [ Utility Stay and Continuing Service ] § 68.1  Utility Stay and Continuing Service and 437.1 [ Utility Stay Uncertainty ] § 68.2  Utility Stay Uncertainty after BAPCPA.

 

11  See § 91.1 [ Utility Stay and Continuing Service ] § 68.1  Utility Stay and Continuing Service.

 

12  See, e.g., 11 U.S.C. § 366(c)(4), which authorizes setoff against a security deposit “without notice or order of the court,” discussed in §§ 91.1 [ Utility Stay and Continuing Service ] § 68.1  Utility Stay and Continuing Service and 437.1 [ Utility Stay Uncertainty ] § 68.2  Utility Stay Uncertainty after BAPCPA.

 

13  See 11 U.S.C. § 1327(b), discussed in § 230.1 [ 11 U.S.C. § 1327(b): Vesting Effect on Property of Estate ] § 120.3  11 U.S.C. § 1327(b): Vesting Effect on Property of Estate.

 

14  11 U.S.C. § 503(b)(1)(A).

 

15  See §§ 207.1 [ Retention of Property of the Estate: Overcoming 11 U.S.C. § 1327(b) ] § 113.11  Retention of Property of the Estate: Overcoming 11 U.S.C. § 1327(b) and 230.1 [ 11 U.S.C. § 1327(b): Vesting Effect on Property of Estate ] § 120.3  11 U.S.C. § 1327(b): Vesting Effect on Property of Estate.

 

16  See 11 U.S.C. § 1305(a)(2), discussed in §§ 302.1 [ Postpetition Claims ] § 137.1  Postpetition Claims before BAPCPA and 524.1 [ Postpetition Claims ] § 137.2  Postpetition Claims after BAPCPA.