A Regelment-Legal bankruptcy attorney answers the question Who Files for Chapter 9 Bankruptcy?
Chapter 9 of the Bankruptcy Code is reserved only for municipalities that want to file bankruptcy.
How is a municipality defined?
Municipalities that file chapter 9 must meet the definition in the bankruptcy code. The bankruptcy code defines municipalities as a “political subdivision or public agency or instrumentality of a state.” 11 USC 104(b). The definition is broad enough to allow cities, townships, and public improvement districts to file chapter 9 bankruptcy.
What happens when a municipality files chapter 9 bankruptcy?
Similar to other chapters, a municipality that will file chapter 9 must provide a list of creditors and provide notice to them. In addition, municipalities that file chapter 9 receive an automatic stay from collection.
Is a trustee appointed when a municipality files chapter 9?
Yes, although unlike other bankruptcy chapters, when a municipality files chapter 9 no examination of the municipality is conducted. In addition, the trustee does not monitor the financial operations of the municipality when it files chapter 9 and does not review the fees for professionals assisting with the case. This is primarily due to the 10th Amendments states rights provision.
What powers does a municipality that files chapter 9 have?
When a municipality files chapter 9 there are special bankruptcy statues that provide it with broad powers to run its financial affairs. These powers include raising taxes, rejecting collective bargaining agreements, and rejecting retirement benefit plans.
Is a debt management plan created when a municipality files chapter 9?
Yes, the bankruptcy code allows municipalities, when it files chapter 9, to develop a debt management plan. The plan either extends maturities, reduces the amount of principal or interest, or allows the municipality to refinance. There is no liquidation provision because of interference with the 10th Amendment states rights clause.
How does a municipality exit bankruptcy after it files chapter 9?
The municipality, in order to be discharged, must present a plan and deposit what is to be repaid under the plan with a disbursing agent, who is appointed by the court. Then the court must be satisfied the disbursements will be carried out.
