When the coast is clear, and the trucks from the contractor shutting off water for the city of Detroit have rolled away, the men with water keys come.

They offer residents whose supply has just been shut off a tempting deal. For $20, they will use their tools to turn the water main back on immediately, and illegally, sparing the household the agonising days spent without showering, cooking or flushing that have already been endured by at least 16,000 of their neighbours so far this year.

It is only the most desperate action being taken in response to the beleaguered city's aggressive campaign to recoup $89m in overdue water bills by abruptly cutting the supplies of people behind on their payments. Amid growing anger, Detroit officials agreed in court on Monday to a two-week pause, to allow poor customers to come forward and show that they genuinely cannot afford to pay. But then the shutoffs will resume.

“You're going to do what you have to do to get water back on in your home,” said Valerie Blakely, a community organiser and mother of five whose overdue bill stands at more than $1,000. “As far as I'm concerned, what the city is doing is the illegal activity. You're not going to come and put us in a life-or-death situation and not have us act like we are fighting for our own survival.”

Some physically obstruct the contractors. Others leave cars parked over their mains at night. A guide circulating online instructs people how to lock the main back on and seal it in concrete. “If anyone from the city or water department asks what happened: the shutoff is outside your home,” it says. “Who knows what some radical did while you were asleep?”

But resistance is risky. A city inspection of 178 homes whose water was shut off last week found that 79 had restarted their supplies, triggering $21,750 in fines on top of what the residents already owed. Of 414 shut-off homes checked in June, 205 were found to have turned the water back on. A first-time penalty is $250. Being caught a second time carries a $500 fine. A third strike, supposedly, leads to the permanent termination of the house’s water supply.

“There are severe consequences,” said Bill Johnson, a spokesman for Detroit's water and sewerage department. “People are making things worse for themselves. The penalties may be more than the actual bill."

Johnson told reporters on Monday that city inspectors would be using the two-week hiatus to hunt for more users who had turned their water back on.

The penalties are the latest salvo in a battle between Kevyn Orr, the emergency manager overseeing Detroit's unprecedented bankruptcy, and thousands of hard-up people in a once-proud American city where the median household income is now less than half the national average, and where adults with jobs and children not living in poverty are now in minorities.

Anyone who owes $150, or is two months overdue, on their water bills, faces shut-offs by the private contractor, Homrich, a demolition company that is being paid up to $6m in public funds. The city says that about 80,000 residential customers are now past due on their bills, owing a total of $43m – more than $535 on average. Last month, the city council approved an 8.7% increase on water prices, which will push household bills to almost twice the US average.

Orr describes the shutoffs as “a necessary part of Detroit’s restructuring” as it works to reduce the $18bn in debts it listed when filing for America's biggest municipal bankruptcy a year ago. About $5.4bn of that total related to water and sewer bonds. Orr has said these creditors will be paid in full.

Yet opponents claim that he is simply scrambling to clean up the water department's books for a privatisation that could push prices even higher – and that the total owed by the city’s struggling people is dwarfed by the fees Detroit is paying big banks after making bad financial bets. There is widespread anger, too, that homes have been targeted before the 21,000 delinquent businesses, schools and other non-residential properties, which together owe $46m. City officials claim that cutting off supplies in commercial properties is “more complicated”, and that more shut-off crews must first be hired and trained.

Orr also stresses that anyone with “demonstrated financial need” who approaches the water department before being cut off can enter more manageable payment plans – which, following Monday’s announcement, are going to be better publicised. Claiming that half of customers who are cut off settle their bills within 24 hours, allowing their service to be restored, city officials insist that genuinely poor residents are not being persecuted.

“These are not people who can’t afford to pay,” said Johnson. “They just don’t want to pay. These are people who are scamming, who want to scam the system.” He went on: “People pay their cable bill, their cell phone bill, all these other bills, and the water bill is the last one they will pay. Why? Because we have never had until this year an aggressive cut-off campaign”.

It is an allegation that enrages people on the ground. “That's offensive for them to say, and is just blatant lies,” said Blakely. Campaigners assisting shut-off residents say that many do not know about the payment plans, or can not afford the 30% initial payment anyway. Those who do, and can, are made to wait hours on hold to customer service or wait all day in line.

Many of the people who settled up within 24 hours of being cut off, supporters say, were able to do so only after receiving emergency cash from churches, charities or friends. One resident told the Guardian that her neighbour raided funds set aside for her elderly mother's prescriptions to get their water running again. “This is a public health emergency in America,” said Ann Rall, a leading figure in the Detroit People's Water Board, a coalition of interested groups. “It is an absolute outrage”.

On a hot afternoon last week, the day after the shut-off contractors had visited, the pavements outside 27 houses on Rutland Street, in the west of the city, bore a sky-blue mark, spray-painted by the workers as a sort of public announcement that the residents inside have had their water cut. No one seems to know what purpose this serves. “This blue line, this mark of the beast – it is shaming and it is outrageous,” Lila Cabril, 69, told city officials at a disastrously handled and bad-tempered town hall meeting a few miles to north the following evening.

In one blue-marked bungalow, Belinda S said that she, her husband Kevin, and their five children aged between four and 22, were surviving on buckets of water brought over by a cousin who lives nearby. “It ain’t easy,” Belinda said, with a smile. The family used to live in a nicer place in a better part of the city. She and Kevin worked at the same manufacturing plant, alternating day shifts and nights. “We were making decent money, and had a decent living,” she said. They paid their bills.

Then the company closed its facility and moved their jobs out of Detroit. Kevin found a new berth at Focus: HOPE, an education and training non-profit, but Belinda couldn't find anything. She recently hit the time limit for receiving unemployment benefits. Now the whole family lives on the $11 an hour that Kevin makes. They owe more than $1,000 in water bills, some of which, Belinda insists, dates back to before they even moved in. “It’s rough, but we're making it,” she said. “I think God is good, cos we're still making it.”

Amid widespread terror about the fact that a lack of running water is cited by the federal government as evidence of child neglect, Belinda did not want her surname to be published. Others refused to discuss their situations at all. Campaign groups have begun protecting shut-off residents from reporters, after some of those who featured in early coverage of the crisis received torrents of abuse on social media.

The situation is so dire that last month the United Nations weighed in. Responding to a complaint filed by the pressure groups, an expert panel led by Catarina de Albuquerque, the UN's special rapporteur on safe drinking water and sanitation, said cutting off the supplies of those who cannot afford to pay “constitutes a violation of the human right to water and other international human rights.”

At the town hall meeting, Johnson, the city spokesman, dismissed the UN's intervention with a sneer. “I personally don't think the department should respond at all,” he said. “This is the same organisation that's trying to achieve world peace – it's not going to happen.” Residents gasped and jeered. Several police officers stood on guard, one taking photographs of the audience with his cell phone from the balcony.

Johnson enraged the audience further by repeating the claim that no one who couldn't afford their bills was being cut off. “No matter what you're saying, that is not happening,” he said. In her seat, Lila Cabril erupted. “I know people unable to pay,” she said. “People are ashamed they cannot pay – you don't understand.”

Voices grew louder and fingers were pointed. “I was born in a ghetto. I worked my way out of it,” Johnson, impeccably groomed in a tailored suit with a pocket square and polished black shoes, told her. “Don't tell me I don't understand poverty. I lived it.”

Audience members were handed a pack on their way into the meeting that included a small keypad, and asked to vote on a series of questions displayed on an interactive screen. 75% said that they opposed the shut-off policy. Some were astonished to find that the welcome packs also included free rain-water gauges for their gardens, emblazoned with the Detroit Water and Sewerage Department crest.

The anger boiled over into downtown Detroit the next afternoon, when a rally of a few thousand protesters marched on a dispatch facility for the shut-off trucks, blocking the entrance. Nine were said to have been arrested. “The banks got paid off, we got shut off!” some chanted. They demanded an immediate and long-term moratorium on shut-offs and a drastic overhaul of the water pricing system to make it less expensive for poorer users – for which they have detailed plans.

The crowds were addressed by the actor Mark Ruffalo, who campaigns against hydrofracking and for safe water. “These shut-offs are an absolute humiliation to the American sensibility of decency,” he told the Guardian.

“Listen, man,” he added, leaning in and growing visibly angry. “These people are Americans. We will not blink an eye to send trillions of dollars overseas to wage warfare in an illegal war. But we can't come up with the money that it takes to keep a community in water, when it's in the throes of an economic catastrophe that was caused by Wall Street?”

About half of $1.16bn in bonds issued by the city for the water and sewer department in 2011-12 – $547m – was used to pay for termination fees to major Wall Street banks after the contractual cancellation of financial deals because of a downgrade in the city’s credit rating.

Back on Rutland Street, a bearded man in torn and dirty clothes shuffled down the pavement towards Belinda S’s front door. He grunted and groaned at her, rubbing his stomach as if to request food.

After shooing him away, she excused herself so that she could continue preparing dinner for her children, with water supplied by her cousin. While some of her neighbours are resorting to illicitly turning their water back on, she said, she has steadfastly refused. “Of course you’re tempted,” she said. “But me? I can’t do nothing illegal. I'd just get caught.”