Case No. 97-74623United States Bankruptcy Court, C.D. Illinois
August 18, 1998
OPINION
BASIL H. COUTRAKON, U.S. Bankruptcy Judge
Before the Court is Debtor’s Motion for Reimbursement of Utility Deposit and Payment of Pre-Petition Utility Service, the Objection thereto filed by Illinois Power Company (“IP”), and the Trustee’s Motion for Return of Funds from IP.
Debtor filed her Chapter 7 petition in bankruptcy on December 30, 1997; she converted her case from Chapter 7 to Chapter 13 on March 4, 1998. Upon the conversion of her case from Chapter 7 to Chapter 13, IP, which had provided electric and/or gas service to Debtor under a commercial account, closed said account and opened a new commercial account for Debtor. A security deposit of $800, which had been given to IP by Debtor in 1996, was applied to the arrearage on the old account. On the petition date, the balance due and owing on the old account was $1,053.19. On the date of the application, the balance due and owing on the old account was in excess of $1,200.
Thereafter, Debtor gave IP a check dated April 13, 1998, in the amount of $600. The check was tendered by Debtor to be applied toward the old account; however, IP applied that payment to the new account. On or about May 18, 1998, Debtor was contacted by IP and informed that, unless she immediately paid the sum of $1,500 as a security deposit, her utility services would be terminated. On May 18, 1998, Debtor tendered another check to IP in the amount of $1,689.98, which included the $1,500 security deposit demanded plus $189.98 due on a current bill. Debtor has a remaining credit balance of $1,093.91, which IP proposes to use as a security deposit on the new account.
Shortly after May 18, 1998, Debtor’s counsel allegedly contacted counsel for IP demanding the return of the $1,500 security deposit; counsel for IP disputes having spoken with Debtor’s counsel. IP contends that all of its actions in this matter have been perfectly appropriate and proper in every way. The Trustee requests that the Court set the post-petition security deposit at no more than $800 and require IP to turn over to the Trustee the remaining $293.91 held by IP as a security deposit.
Pursuant to Section 366 of the Bankruptcy Code, a utility is required to continue providing service to a debtor provided the debtor furnishes “adequate assurance of payment” for its post-petition utility bills. In addition, on request of a party in interest, the court may order reasonable modification of the amount of the deposit or other security necessary to provide adequate assurance of payment. 11 U.S.C. § 366
(b). The Code gives no guidance regarding the amount that is appropriate; however, the legislative history of Section 366 indicates that the provision was fashioned to protect the utility while preventing discrimination against the debtor. H.Rep. No. 95-595, 95th Cong., 1St Sess., 350 (1977). When this issue arises in the context of a Chapter 11 or Chapter 13 case, the bankruptcy court must also concern itself with the success of the rehabilitative process. In re Utica FloorMaintenance, Inc., 25 B.R. 1010, 1013 (N.D.N.Y. 1982). Cases of this nature must be decided on a case by case basis, considering the risks to the particular utility as well as the individual debtor’s situation. Inre Lindsey, No. 89-80188 (Bankr. C.D. Ill. 1989)
Preliminarily, IP was well within its rights to apply the pre-petition security deposit to Debtor’s outstanding pre-petition balance. See In reNorsal Industries, Inc., 147 B.R. 85 (Bankr. E.D.N.Y. 1992) (utility did not violate automatic stay by reducing amount of debtor’s pre-petition indebtedness by taking possession of debtor’s pre-petition deposit). Because IP was entitled to recoup the deposit made by Debtor, IP did not violate the automatic stay by taking Debtor’s pre-petition deposit and applying it to the $1,053.19 owed to IP by Debtor on the petition date. As Section 366 of the Bankruptcy Code entitles IP to adequate assurance of payment in the form of a deposit or other security for services post-petition, IP was within its rights to demand a security deposit from Debtor for the new account. Debtor’s position that by providing for regular payment through her Chapter 13 Plan she has provided adequate assurance of payment to IP is rejected. Since IP is entitled to a deposit for post-petition services, it did not violate the automatic stay by contacting Debtor and requesting such a deposit.
The remaining issue is the reasonableness of the deposit demanded and given. In 1996, IP had demanded and Debtor gave a deposit of $800 and, as indicated above, that deposit was applied to her pre-petition account arrearage. With respect to her new account with IP, IP demanded a deposit of $1,500, which it subsequently reduced to $1,093.91. According to IP, a sufficient deposit is one-third of the previous twelve months’ usage. Also according to IP, Debtor used $4,500.00 in power and gas service over the previous 12 months. As one-third of $4,500.00 is $1,500.00, IP demanded a deposit of $1,500.00 from Debtor.
According to Judge Altenberger in In re Lindsey, supra, a security deposit of three times the debtor’s monthly bill plus a disconnect fee is reasonable. This Court finds that the Lindsey formula is appropriate in this case. Under the Lindsey formula, a reasonable security deposit would be $1,150.00 ($4,500 ÷ 12 = $375; $375 x 3 = $1,125; $1,125 + $25 [disconnect fee] = $1,150). As $1,093.91 is less than $1,150.00, the Court finds that the security deposit being held by IP for Debtor’s account is reasonable.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
See written Order.