Chapter 7 Bankruptcy – "6 Months Food, Fuel and Supplies" – Part II

I’m back with more information on what “6 months of food, fuel and supplies” really means. Last time we talked about grocery store gift cards, if they are considered an exempt asset. Today I would like to mention a few things related to paying your utility bills early.

Let’s go back to February of this year. A married couple filed a Chapter 7 bankruptcy petition with a reasonable intent to provide 6 months of fuel and/or supplies, as allowed by the specified exemptions. Specifically, they listed in their Schedule C prepaid utilities for a total amount of $3,333.50. His trustee objected.

The debtors reasoned thus. As we’ve said before, ARS 33-1124, Arizona’s food and fuel exemption law, allows for an ambiguous “6 months of food, fuel, and supplies.” Because they couldn’t simply buy an equal amount of electricity or natural gas and store it in their backyard shed, the debtors calculated their average monthly utility and submitted a 6-month advance payment.

There is a catch. The aggregate amount from Schedule C could be broken down as follows: “Debtors paid Qwest in the amount of $1,000; Arizona Public Service, the amount of $1,400; City of Phoenix, the amount of $750; and Southwest Gas Company, the amount of $183.50.”

The Court agreed that providing 6 months of potentially hazardous and volatile fuel in kind (would you like your neighbor to store 6 months of propane in your garden shed?) is illogical, unsafe and simply illegal. Therefore, unlike the gift card example, prepayment was considered an acceptable substitute.

However, the Court later questioned whether these public services actually fell under the exemptions allowed by ARS 33-1124. Because ‘fuel’ hasn’t been defined in Arizona case law, they turned to trusty old Webster, who defined fuel as “[A]Any material, such as coal, oil, gas, wood, etc., burned to supply heat or power……[F]isible material from which nuclear energy can be obtained, such as in a nuclear reactor……”

Thus, the Court concluded that “the supply of natural gas or electricity falls within the parameters of the definition. However, deposits with the telephone/Internet provider or the City do not fall within the definition of fuel.” So Arizona Public Service (electric) and Southwest Gas (gas) are hot; Quest (phone/internet) and City of Phoenix (trash/water) are out.

What have we learned today?

1. Prepayments for utilities that provide “fuel” may be exempt for a monetary amount equal to 6 months of payment.

2. Internet/phone and water trash are not ‘combustible’ and therefore similar exemptions do not apply.

We can also deduce from this that the Court does not consider these excluded services as ‘provisions’, as this would change their exempt status. So, in closing, I’d like to repeat the question I asked earlier… What the heck is a provision?