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Chapter 9

Chapter 9 of the Title 11 United States Bankruptcy Code has to do with municipality bankruptcies. Municipalities include cities, towns, and villages, counties, school districts, taxing districts, and municipality utilities. Chapter 9 helps municipalities to restructure their debts and reorganize the municipality. The most significant difference between a Chapter 9 and Chapter 7 bankruptcy is that the law has no provision for liquidating assets in a Chapter 9 case. Unlike Chapter 7, where assets are liquidated and the proceeds distributed to creditors, in the case of Chapter 9 municipality bankruptcies, selling off assets would, according to US courts, be in violation of the Tenth Amendment to the Constitution. Instead, a reorganization plan is devised allowing a municipality protection from creditors during the reorganization.

Fast Facts

  • There have been less than 600 municipal bankruptcies since 1937.
  • Vallejo, California filed for Chapter 9 in 2008, due to an inability to pay pension obligations.

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