Chapter 9: Municipality Bankruptcy
In the more than 60 years
since Congress established a federal mechanism for the
resolution of municipal debts, there
have been fewer than 500 municipal bankruptcy petitions
filed. Although chapter 9 cases are rare, a filing by
a large municipality can-like the 1994 filing by Orange County,
California-involve many millions of dollars in municipal
debt.
Under the new Bankruptcy Act of 2005, credit counseling may be required or other options may be required, Contact a Chapter 9 Bankruptcy Lawyer to find out all your legal options and rights
Although similar to other chapters in some respects, chapter
9 is significantly different in that there is no provision
in the law for liquidation of the assets of the municipality
and distribution of the proceeds to creditors.
Current Provisions of Chapter 9
Eligibility for Relief. Only municipalities, defined as a "political subdivision or public agency or instrumentality of a state", are eligible for Chapter 9. A municipality must satisfy four threshold requirements in order to obtain Chapter 9 relief:
- 1. Have specific state authorization to be a debtor under Chapter 9
- 2. Be insolvent
- 3. Desire to effect a plan to adjust its debts; and
- 4. Satisfy one of four alternatives
a. Has obtained the consent of at least a majority in amount of impaired claimholders under the proposed plan; or
b. Has negotiated in good faith but has failed to reach any agreement with a majority of the impaired claimholders under the proposed plan
c. Negotiation with such claimholders is impractical
d. Has a reasonable belief that a creditor may attempt to obtain a preference.
Chapter 9 has principally been used by special purpose municipal taxing vehicles, such as school districts, water districts, and hospital authorities to reorganize their financial affairs and restructure their debts. Chapter 9 has rarely been utilized by an entire city or county.
Read more about Chapt 9 at University of Texas Federal Depository Library
Bankruptcy Law Is A Federal Law. This Sheet Gives You Some General Information About What Happens In A Bankruptcy Case. The Information Here Is Not Complete. You May Need Legal Advice.
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