Linnea Dawn Martinez

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF IOWA
IN RE:
LINNEA DAWN MARTINEZ,
Debtor
Chapter 7
Bankruptcy No. 25-00898
OPINION AND ORDER ON DEBTOR’ S M OTION FOR S ANCTIONS
VIOLATION OF THE AUTOMATIC S TAY
This matter came before the Court for a telephonic hearing on December 12,
2025, on Debtor’s Motion for Sanctions for Violation of the Automatic Stay (Doc.
26). Linnea Dawn Martinez (“Debtor”) appeared pro se. Attorney Adam J. Babinat
appeared for Cedar Falls Utilities (“CFU”). The Court heard argument and took the
matter under advisement. This is a core proceeding under 28 U.S.C. § 157(b)(2).
I. STATEMENT OF THE CASE
Debtor’s Chapter 7 petition and Amended Schedules listed CFU as a creditor
that provided pre-petition services. Debtor’s Motion for Sanctions for Violation of
the Automatic Stay alleges that after the bankruptcy filing, CFU violated the stay
when it requested a security deposit and later refused to refund it in full. CFU filed
a response, objecting to these allegations. For the reasons stated below, the Court
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finds that CFU has not violated the automatic stay and Debtor’s Motion should be
denied.
II. Findings of Fact
CFU is a public utility that provides water, gas, electricity, internet, and
telephone services to Cedar Falls residents. Debtor, a Cedar Falls resident, paid for
and received electricity, gas, water, sewer, and refuse services. Five days before
Debtor filed for bankruptcy, CFU disconnected Debtor’s services for unpaid debts.
After receiving notice of the filing, CFU created a new account for Debtor and
reconnected her services.
A month later, Debtor called CFU to add internet services to her account. CFU
informed Debtor over the phone and by letter that including internet services would
require a $325 security deposit to secure Debtor’s account for any post-petition
defaults. Debtor paid the security deposit.
A few weeks later, Debtor canceled the internet services and sought a full
refund of the security deposit. CFU agreed to refund only the amount equivalent to
one-months’ worth of internet services but kept the remainder to secure payment for
the services Debtor would continue to receive. The same day, Debtor filed a Motion
for Sanctions for Violation of the Automatic Stay, arguing that: (1) CFU’s request for
a security deposit was an impermissible attempt to collect dischargeable debt, and
(2) CFU’s refusal to refund the entire security deposit violated the automatic stay.
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III . DISCUSSION
A bankruptcy filing immediately triggers the automatic stay of section 362. 11
U.S.C. § 362. The automatic stay prohibits “the commencement or continuation of
an action or proceeding against the debtor that was or could have been commenced
before the commencement of the bankruptcy case.” In re Edwards, 601 B.R. 660,
663 (B.A.P. 8th Cir. 2019); 11 U.S.C. § 362(a)(1). The prohibition includes actions
“to collect, assess, or recover a claim against the debtor that arose before the
commencement of the case.” 11 U.S.C. § 362(a)(6). See, e.g., In re Goodfellow, 298
B.R. 358, 362 (Bankr. N.D. Iowa 2003) (holding that the creditor’s continuous
threats by phone to coerce the debtor to pay pre-petition debts violated the automatic
stay).
Debtor’s main contention is that both CFU’s request for a security deposit and
refusal to refund the full amount violated the automatic stay. CFU argues that no stay
violation occurred because, as a utility provider, it is entitled to request adequate
assurance of payment in the form of a security deposit. Section 366 provides a
debtor’s rights and obligations when seeking to maintain utility services after filing
a bankruptcy petition. Martinez v. Autoridad De Acueductos y Alcantarillados (In re
Martinez), 504 B.R. 722, 728 (Bankr. D. P.R. 2014). Section 366 states:
(a) Except as provided in subsections (b) and (c) of this
section, a utility may not alter, refuse, or discontinue
service to, or discriminate against, the trustee or the debtor
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solely on the basis of the commencement of a case under
this title or that a debt owed by the debtor to such utility
for service rendered before the order for relief was not paid
when due.
(b) Such utility may alter, refuse, or discontinue service if
neither the trustee nor the debtor, within 20 days after the
date of the order for relief, furnishes adequate assurance
of payment, in the form of a deposit or other security, for
service after such date. On request of a party in interest
and after notice and a hearing, 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(a), (b). Section 366 recognizes that debtors “rely on the continuation
of 	utility 	services 	throughout 	the 	pendant 	duration 	of 	their 	bankruptcy
proceedings.”1 In re Martinez, 504 B.R. at 728. Congress established section 366 to
“prevent the threat of termination from being used to collect pre-petition debts that
would not otherwise force utility companies to provide services that they may never
receive payment for.” Id. at 729 (citing Begley v. Phila. Elec. Co., 760 F.2d 46, 49
(3rd Cir. 1985)). Without this section, a utility company could coerce debtors to pay
their pre-petition debts as these services are necessary and may be unavailable
elsewhere. In re Sanchez, 545 B.R. 55, 58 (Bankr. D.N.M. 2016). “Section 366(a)
bans utility companies from altering, refusing, or discontinuing service to, or
1 In enacting section 366, Congress “intended to cover utilities that have some special position with respect to the
debtor, such as an electric company, gas supplier, or telephone company that is a monopoly in the area so that the
debtor cannot easily obtain comparable service from another utility.” H.R. Rep. No. 95-595 at 350 (1977), reprinted
in 1978 U.S.C.C.A.N. 5963.
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discriminating against, a trustee or a debtor solely on the grounds that the debtor has
not paid its prepetition debts when due.” In re Martinez, 504 B.R. at 729. See also
In re Moorefield, 218 B.R. 795, 796 (Bankr. M.D. N.C. 1997) (further noting that
section 	366 	“was proposed to prohibit a utility company from abandoning a
debtor.”). Accordingly, this provision is commonly regarded as an extension of the
automatic stay. 3 Collier on Bankruptcy ¶ 366.02 (16th ed.). A utility found in
violation of section 366 may receive consequences similar to those of a stay
violation. Id. ¶ 366.06.
Section 366(a) is qualified by section 366(b). In re Martinez, 504 B.R. at 729–
30. Under section 366(b), if the debtor fails to provide adequate assurance of
payment, utility companies can alter, refuse or discontinue service. 11 U.S.C. §
366(b); In re Gur-Meat, Inc., 657 B.R. 675, 679 (Bankr. D. P.R. 2024). A debtor may
provide an adequate assurance “in the form of a deposit or other security.” 11 U.S.C
§ 366(b). “If a debtor fails to provide adequate assurance of payment, . . . [s]ection
366(b) grants utility companies the unilateral right to terminate service.” In re
Martinez, 504 B.R. at 730 (citing Johnson v. Phila. Elec. Co., 80 B.R. 30, 31 (E.D.
Pa. 1987); MFS Telecom, Inc. v. Motorola, Inc. (In re Conxus Communs., Inc.), 262
B.R. 893 (D. Del. 2001); Robinson v. Michigan Consol. Gas Co., 918 F.2d 579, 588
(6th Cir. 1990)). The Debtor does not dispute that CFU is a utility to which section
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366 applies. CFU argues it did not violate the stay because the deposit it requested
was “adequate assurance” under section 366(b). The Court agrees.
Here, CFU’s request for the deposit is the basis of Debtor’s motion. Debtor’s
argument that this request was an attempt to engage in illegal debt-collection activity
is without merit. CFU’s request for a security deposit to secure post-petition
services—which occurred 47 days after the petition was filed— did not violate the
automatic stay.
IV. CONCLUSION
For the reasons stated above, Debtor’s Motion for Sanctions for Violation of
the Automatic Stay is DENIED.
Ordered:
Thad J. Collins
Chief Bankruptcy Judge
March 12, 2026
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