Chapter 9 Bankruptcy

Chapter 9 bankruptcies are unfamiliar to many of us. Designed for financially distressed municipalities, many individuals mistakenly think Chapter 9 doesn’t affect them. But it could. In the 60 years that this type of bankruptcy protection has been available, only a little over 500 petitions have been filed. The best-known case was probably Orange County, Calif., in 1994.

Chapter 9 is different from other types of bankruptcy in that there’s no provision for liquidation of the assets and the trustee has less power. Only a municipality may file a Chapter 9. Bankruptcy Code defines a municipality as a “political subdivision, public agency or instrumentality of a State.

” This can include cities, counties, townships, school districts and public improvement districts. Revenue-producing bodies such as bridge authorities, highway authorities and gas authorities also qualify.In addition to being a municipality, the following four requirements must be met:the municipality must be specifically authorized to be a debtor by state law or by a government officer the municipality must be insolvent the municipality must have the desire to create a plan to adjust its debts the municipality must either:

• obtain the agreement of at least a majority of their creditors
• negotiate in good faith with creditors and fail to obtain the agreement of creditors
• be unable to negotiate with creditors because such negotiation is impracticable
• or reasonably believe that a creditor may attempt to obtain a preference.

The municipality must voluntarily seek bankruptcy protection. Once a petition is filed they are granted protection from their creditors. They are obligated to notify all creditors and make public announcements regarding their intention to file bankruptcy. A trustee is appointed but most decisions are made by a creditors committee. The municipality proposes a debt restructure plan. The court has strict guidelines the municipality must meet. If these guidelines are met and the court determines the proposed plan is in the best interests of the creditors, it is approved by the court.

Approving the plan allows a municipality to continue operating with little or no disruption in service. It’s usually a win-win situation for everyone involved.

Margaret Norton, a Personal Life Coach/Writer/Speaker, resides in St. Peters, Mo.

(photo credit: akarkhanis)

April 9th, 2009 by admin | Posted in Business | (0)