By Ryan C. Wood

The whole point in filing bankruptcy whether it is a corporation, individual or municipality like the city of Stockton, California is to obtain relief from overwhelming debts.  The process of reorganizing for many corporations and municipalities is extremely expensive though.  It is not necessarily the bankruptcy attorney fees that make the process expensive though.  Why is it so expensive then?

When a corporation or municipality files for bankruptcy protection the ripple effect of the filing is very broad and disrupts operations that are far reaching.  The automatic stay pursuant to section 362 of the Bankruptcy Code takes effect when the bankruptcy case is filed and stops any and all collection activities.

For example, the Stockton Police Officers Association (“SPOA”) recently filed a motion with the court to modify the automatic stay.  The SPOA had to hire a bankruptcy lawyer to help them of course.  Does Stockton owe the SPOA money?  No, but no entity wants to violate the stay and just in case it is good idea to seek relief from the automatic stay or modify the stay to make sure you are not violating the stay.

According to court documents the SPOA represents all persons currently employed in the ranks of police officer and sergeant in the Stockton Police Department.  The SPOA sued Stockton in state court in San Joaquin County after Stockton declared a fiscal emergency in 2010 and then changed the benefits and rights of SPOA members.  The automatic stay has stopped this litigation.  But there are disciplinary proceedings from grievances that are still pending.  The City of Stockton believes the disciplinary proceedings and any appeals of disciplinary actions are also stayed.  So the SPOA and the Stockton decided to modify the automatic stay to allow for some of the grievances to move forward to resolution and allow for back pay or other economic benefits to be paid the SPOA members.

This is why reorganizing debts in bankruptcy is so expensive.  Who would have thought that the filing of bankruptcy under chapter 9 of the bankruptcy code by Stockton would affect a grievance filed by a police officer a year and a half ago or longer?  There will be issue after issue that arises like this that must be dealt with by the bankruptcy court.  Each time Stockton’s bankruptcy lawyers fees will increase and the City of Stockton will have to pay that bill eventually.  It will just be a matter of time before the professionals in this bankruptcy case file fee applications for approval of their fees by the court.  I am going to roughly guess attorney fees will exceed $5 million for the City of Stockton alone, unless the case is dismissed for lack of eligibility.