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 under Chapter 9 bankruptcy filings law. 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, unlike your typical individual bankruptcy.
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.
Content Related to Topic
- What Is Chapter Nine Bankruptcy
Explanation Of What Chapter 9 Bankruptcy Is
- History of Chapter 9
Description Of The History Of Chapter 9 Bankruptcy
