Local Government Q&A Ancel Glink attorneys each month post a new question and answer on the website. Many of these questions have been edited and collected in a pamphlet in the Ancel Glink Library: 230 Questions that have Actual Answers. Set out below are a series of recent questions and answers. Test your knowledge of questions and answers about local governmental bodies with those listed below. Many of these questions are directed to municipalities, but others specifically deal with municipalities with some questions concern legal issues in the context of other governmental bodies. Many of these answers apply to all governments in Illinois.Click here to submit a question to Ancel Glink.
Municipal Q&A - November 2005
What Does the New Bankruptcy Law Mean for Municipalities?
Britt W. Isaly
ANSWER:
Times are about to get tougher for your bankrupt residents, both private persons and businesses, who fail to pay their water, sewer or other utility bills. On October 17, 2005, the Bankruptcy Abuse Protection and Consumer Protection Act ("Act") became effective with regards to improved bill collection rights by utilities against bankrupt utility users. This new law permits a utility to more efficiently request the bankruptcy trustee who administrates the bankruptcy proceedings to provide assurance that payments will be made to the utility.
Generally, the original Section 366 of the Bankruptcy Code provided that, except in certain circumstances, a utility may not alter, refuse, or discontinue service to, or discriminate against, the trustee in bankruptcy or a debtor who files for bankruptcy or when the debtor owes money to the utility for service rendered by the utility before the filing of the bankruptcy. The newly-revised Section 366 now permits a utility to alter, refuse or discontinue service if the utility has not received adequate assurance of payment of the bill within 30 days of the debtor filing its bankruptcy petition. "Adequate assurance" of payment is defined as a cash deposit, a letter of credit, a certificate of deposit, a surety bond, a pre-payment of utility consumption, or any other form of security agreed upon by the debtor or trustee and by the utility. The amendment applies to Chapter 11 bankruptcies which are filed on or after October 17, 2005, and clearly enhances utilities' rights against corporate debtors.
Resident utility users who file for bankruptcy under Chapter 7 (individual liquidation) or under Chapter 13 (Adjustments of Debts of an Individual with Regular Income) or the Trustee who administers the bankruptcy must still provide adequate assurance to a utility provider within 20 days after the date of the Order for relief and after notice and a hearing. However, in Chapter 11 filings, (applicable to corporations,) the utility is permitted to take action by altering, refusing, or discontinuing utility service unless it gets what the utility agrees is adequate assurance within 30 days of the bankruptcy petition filing date.
Most creditors, including municipal utilities, learn about a debtor's or business' bankruptcy when they receive a written court notice of the new bankruptcy filing within approximately 30 days after the debtor files his petition in bankruptcy. The notice, usually referred to as a "Section 341 Notice of Initial Meeting of Creditors," gives creditors deadlines for filing a proof of claim for any debts owed by the debtor, the date of the first meeting of creditors, and the names and phone numbers of the debtor's bankruptcy attorney and of the trustee in bankruptcy. If a public entity finds out about the bankruptcy, but never receives an official notice of it from the bankruptcy court, it can access the case through the court's website, and enter the name of the debtor to determine deadlines for creditors. (The website for the Northern District of Illinois, Eastern Division, which serves the Chicago metropolitan area is www.ilnd.uscourts.gov and its clerk's docketing phone number is 312/435-5670.)
First, when your entity's utility learns of a bankruptcy the bill should be adjusted so that the debtor no longer gets billed for pre-petition debt owed. This pre-petition debt is now in the hands of the Trustee for administration. The utility/creditor is prohibited under the automatic stay provisions of the Bankruptcy Code from continued contact of the debtor for pre-petition debt. (Note: Past balances of residents who file for bankruptcy under Chapter 13 might be handled a bit differently, as Chapter 13 debtors usually pay off their past-due debts through the bankruptcy trustee as part of a repayment plan.)
Second, the municipality or utility may want to contact the case's bankruptcy trustee as soon as possible after learning of the resident's bankruptcy. The trustee's name and telephone number appear on the initial Notice of Bankruptcy filing. The utility should request adequate assurance, generally preferred in the form of a cash deposit, from the trustee pursuant to Section 366 of the Code.
Additionally, when permitted by law, the entity may file a utility lien at the county's Recorder of Deeds' office, though this generally is not permissible once the bankruptcy has been filed, again due to the automatic stay provisions preventing actions by creditors against the debtor's property. Filing a utility lien gives the municipality's claim a higher priority in the bankruptcy creditor pecking order--and greater potential right to get paid by the trustee--than the claims of those creditors who have unfiled, unsecured debts.
Third, after the pre-petition debt has been reduced to a claim against the bankruptcy, (and, again, the utility may not continue billing the debtor in bankruptcy for this pre-petition debt,) and after the utility requests adequate assurance for payment of future utility bills from the Trustee or the attorney for the debtor, new and future utility bills for post-petition service can be processed to the debtor for utility service in the ordinary course of business.
For additional information on this new law or these procedures, contact Britt Isaly, Ancel, Glink, Diamond, Bush, DiCianni & Krafthefer, P.C., at 312/782-7606.
Previous Questions
Can an Illinois governmental body either by ordinance or referendum provide for the recall of its elected officials?
Is it important for governmental bodies to obtain completion and payment bonds for public works projects?
Can a local government ban convicted sex offenders from use of public parks?
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A New Revenue Source for Municipalities
May a local government require a developer to pay the cost of review of development plans?
May a governmental body give money to a charitable or religious organization?
What is the new Illinois law regarding terms of office of elected public officials?
Are religious institutions entitled to special treatment in zoning cases?
What Must Municipal Officials Do To Comply With The New Federal and State Overtime Regulations?
What Must Municipal Officials Do To Comply With The New State Ethics Acts?
Can a special use or variance be granted only to a particular person for for a limited time?
Does charging a fee for private use of public property destroy its tax-exempt status?
Does the one-year tort statute of limitations always apply against governmental bodies?
Do fire protection district codes supercede municipal codes?
Are Courts Especially Hard On Governmental Bodies?
What Are the New Rules About Recording Closed Meetings?
What Does a Municipality Need to Know About Extending
Utility Lines?
Are Courts Especially Hard On Governmental Bodies?
How Can You Achieve Flexibilty in
Health Care Coverages in a Collective Bargaining Agreement?
Are political discussions subject to the Open Meetings Act?
What can be done about IMRF Overfunding?
How can a municipality regulate wireless internet service providers?
How can governments counter unionization?
Where can I find an outline of zoning and planning issues?
How are closed session Minutes taken, approved and reviewed?
Will insurance companies and governmental pools cover claims
for "regulatory takings?"
Who gets to choose the municipal attorney?
How are the Open Meetings Act and FOIA impacted by municipal
elections?
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