By Ryan C. Wood, Attorney at Law<\/p>\n
The answer is no, yes, and yes.\u00a0 During recent budget sessions in the California assembly a representative suggested that the State of California should file bankruptcy.\u00a0 It is not possible under the United States Constitution for a state to file for bankruptcy and discharge debts.\u00a0 County governments and municipal governments are able to file for bankruptcy and reorganize their debts in Chapter 9 of the bankruptcy code.<\/p>\n
What Government Entities May File for Bankruptcy?<\/strong><\/p>\n Chapter 9 provides that municipalities may reorganize their debts.\u00a0 The Bankruptcy Code defines a municipality as a \u201cpolitical subdivision or public agency or instrumentality of a State.\u201d\u00a0 Municipalities include cities, towns, villages, counties, taxing districts municipal utilities, water districts, school districts, bridge authorities, highway authorities and gas authorities.\u00a0 Congress created this legislation during the Great Depression.\u00a0 To date, the most famous municipality bankruptcy is Orange County, California.\u00a0 The Bankruptcy Code has four other requirements: (1) the municipality must be specifically authorized to be a debtor by state law or by a governmental officer or organization empowered by State law to authorize the municipality to be a debtor; (2) the municipality must be insolvent, as defined in the Bankruptcy Code; (3) the municipality must desire to effect a plan to adjust its debts; and (4) the municipality must either: obtain the agreement of creditors holding at least a majority in amount of the claims of each class that the debtor intends to impair under a plan in a case under chapter 9, negotiate in good faith with creditors and fail to obtain the agreement of creditors holding at least a majority in amount of the claims of each class that the debtor intends to impair under a plan, be unable to negotiate with creditors because such negotiation is impracticable, or reasonably believe that a creditor may attempt to obtain a preference.\u00a0 The Bankruptcy Code defines insolvency as a municipality generally not pay its debts as they become due unless such debts are the subject of a bona fide dispute, or unable to pay its debts as they become due.<\/p>\n Why Would a Municipality file for Bankruptcy?<\/strong><\/p>\n So why would a municipality file for bankruptcy protection?\u00a0 Like corporations or individuals the money coming in is not enough to pay ongoing expenses and service or pay for the existing debt of the municipality.\u00a0 Why not just raise taxes?\u00a0 How municipalities receive funding is very complicated and the ability to just raise taxes is very restricted to product us, the taxpayers.\u00a0 The purpose of the municipal bankruptcy is to get rid of unfavorable financial arrangements such as unexpired leases, executory contracts and even restructure collective bargaining agreements and retiree benefit plans.\u00a0 Many cities and counties are being squeezed by generous retirement packages for retirees, but can filing Chapter 9 reduce these expenses?<\/p>\n A problem with a municipality filing for Chapter 9 bankruptcy is that so few municipalities have done so.\u00a0 There is not a lot of case law or decisions to know what can and cannot be accomplished when a municipality files Chapter 9.\u00a0 In the recent bankruptcy filing of Vallejo, California, the City of Vallejo, according to court records, the city obtained a favorable ruling that California State law did not protect the contracts of city employees.\u00a0 The City of Vallejo did not try to reduce retiree pension plans, a huge expense the City of Vallejo will struggle to pay for years to come.\u00a0 Jefferson County, Alabama could be the largest municipal bankruptcy case if they choose to file in the next week or so.\u00a0 Hopefully the economy will pick up enough so that many municipalities across the United States will realize increase revenues and prevent an epidemic of municipal bankruptcy filings.<\/p>\n For more information about municipal bankruptcy, Chapter 7 bankruptcy or Chapter 13 bankruptcy, contact our Fremont Bankruptcy Lawyers<\/a> or San Mateo Bankruptcy Lawyers<\/a> toll free at 1-877-963-9543.<\/p>\n","protected":false},"excerpt":{"rendered":" The answer is no, yes, and yes. During recent budget sessions in the California assembly a representative suggested that the State of California should file bankruptcy. It is not possible under the United States Constitution for a state to file for bankruptcy and discharge debts. County governments and municipal governments are able to file for bankruptcy and reorganize their debts in Chapter 9 of the bankruptcy code.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[5],"tags":[],"_links":{"self":[{"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/posts\/252"}],"collection":[{"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/comments?post=252"}],"version-history":[{"count":5,"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/posts\/252\/revisions"}],"predecessor-version":[{"id":519,"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/posts\/252\/revisions\/519"}],"wp:attachment":[{"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/media?parent=252"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/categories?post=252"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.westcoastbk.com\/blog\/wp-json\/wp\/v2\/tags?post=252"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}