Chapter 9, Title 11, United States Code

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Bankruptcy in the
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Bankruptcy in the United States
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Aspects of bankruptcy law

Chapter 9, Title 11 of the United States Code is a chapter of the United States Bankruptcy Code, available exclusively to municipalities and assists them in the restructuring of debts. The two largest municipal bankruptcies under Chapter 9 have been Jefferson County, Alabama in 2011 and Orange County, California in 1994. ("Municipality" under the Bankruptcy Code includes many types of governmental units besides cities.[1])

Contents

History [edit]

Recent Chapter 9 filing counts
Year Filings
2006 5
2007 6
2008 4
2009 12
2010 6
2011 13
1st half 2012 7

From 1937 to 2008 there were fewer than 600 municipal bankruptcies.[2] As of June 2012 the total is now around 640.[3]

Previous to the creation of Chapter 9 bankruptcy, the only remedy when a municipality was unable to pay its creditors was for the creditors to pursue an action of mandamus, and compel the municipality to raise taxes.[citation needed] During the Great Depression, this approach proved impossible, so in 1934, the Bankruptcy Act was amended to extend to municipalities.[4][5] The 1934 Amendment was declared unconstitutional in Ashton v. Cameron County Water District.[6] However, a revised act remedying the constitutional deficiencies was passed again by Congress in 1937 and codified as Chapter X of the Bankruptcy Act (later redesignated as Chapter IX).[7] This revised act was upheld as constitutional by the Supreme Court in United States v. Bekins.[8] Chapter IX was largely unchanged until it was amended in 1976 in response to New York City's financial crisis.[9] The changes made in 1976 were adopted nearly identically in the modern 1978 Bankruptcy Code as Chapter 9. In 1988, Chapter 9 was amended by Congress to provide statutory protection from § 552(a) lien stripping provisions to revenue bonds issued by municipalities. This was addressed with the classification of these bonds as "special revenues" under the newly minted § 928(a) and § 922(d) exemption of special revenues from the automatic stay provisions of § 362.[10]

To prevent overlap with Chapter 11, 11 USC § 101(41) of the US Bankruptcy code defines the term "person" to exclude many so called "governmental units" as defined in 11 USC § 101(27), and "Municipality" as defined in § 101(40).

Features of Chapter 9 [edit]

[icon] This section requires expansion. (April 2009)

While in many[clarification needed] ways similar to other forms of bankruptcy reorganization (Chapters 11, 12, and 13), Chapter 9 has a number of unique characteristics. Because municipalities are entities of State governments, the power of Congress to adjust their debts through bankruptcy is limited considerably by the 10th and 11th Amendments.

Collective bargaining [edit]

Municipalities' ability to re-write collective bargaining agreements is much greater than in a corporate Chapter 11 bankruptcy[11] and can trump state labor protections,[12] allowing cities to renegotiate unsustainable pension or other benefits packages negotiated in flush times.[13]

"Congress did not extend the same projection [sic] to public employees that it did to those working in the private sector under Chapter 11 bankruptcy rules."[14][clarification needed]

Some states do not permit Chapter 9 filings without authorization [edit]

Municipalities in 26 states must seek enactment of a specific statute particular to it authorizing the filing.[15]

New Jersey, Connecticut, and Kentucky simply give a state appointed official or body the power to approve a filing.[16]

Notable Chapter 9 bankruptcies [edit]

Partial list of municipal bankruptcies [edit]

Municipalities placed under receivership [edit]

The city of Central Falls, Rhode Island petitioned to be put into receivership in 2010, as Rhode Island does not generally permit Chapter 9 filings. The state appointed receiver or overseer assumed all financial responsibilities from the mayor. Rhode Island's receivership law was rewritten to allow the receiver the ability to file a petition for Chapter 9 federal bankruptcy and Central Falls has done that.[35]

Hospital district Chapter 9 bankruptcies [edit]

A hospital district is a governmental entity, generally with taxing authority, that owns and operates medical facilities.

Hardeman County Memorial Hospital, Quanah Texas http://texomashomepage.com/fulltext?nxd_id=260272

Other entities that declared Chapter 9 bankruptcy [edit]

Chapter 9 bankruptcy petitions that were filed but voluntarily dismissed [edit]

  • Richmond Unified School District, California, 1991[44] After the District filed its petition, the state loaned the District funds to bridge its budget gap, but also appointed an administrator to take over management of the District. The administrator requested that the bankruptcy court dismiss the petition, and this was granted.

Petitions for Chapter 9 relief that were denied [edit]

  • In 1991, the petition for relief filed by the city of Bridgeport, Connecticut, was denied.[45] The case was dismissed because the bankruptcy court concluded that Bridgeport, although financially distressed, was not insolvent within the meaning of the eligibility criteria of Chapter 9.
  • In 2010, the city of Hamtramck, Michigan requested permission from the Governor under Michigan's authorizing law to file a petition for Chapter 9 Bankruptcy,[46] but was denied. Instead of bankruptcy, the treasury advised that Hamtramck be offered a selection of loan options.[47]
  • Washington Park, Illinois December 2010. Washington Park briefly emerged from bankruptcy and then filed a new petition for bankruptcy which was rejected by the judge, who stated there was no Illinois state law enabling a municipality to file a Chapter 9 bankruptcy petition.[48]
  • Boise County, Idaho, March 2011, due to judgment against the county for violating the Fair Housing Act.[49] The bankruptcy petition was dismissed by the judge after concluding the municipality had “sufficient surplus moneys” to satisfy the judgment and continue operations.[50]
  • Harrisburg, Pennsylvania, October 2011, approximately $400 million in debt, due in part to a failed trash incinerator.[51] The bankruptcy judge dismissed the bankruptcy petition on the grounds that not all necessary branches of the municipal government had authorized the filing of the petition.[52]

Notable defaults that did not result in Chapter 9 bankruptcy [edit]

Notable bankruptcies that were declared ineligible for Chapter 9 bankruptcy [edit]

See also [edit]

References [edit]

  1. ^ 11 U.S.C. § 101(40) ("The term 'municipality' means political subdivision or public agency or instrumentality of a State.")
  2. ^ MuniNetGuide: Vallejo Bankruptcy Filing Garners Attention in Municipal Finance Circles
  3. ^ http://www.boston.com/2012/06/27/stockton-bankruptcy-hard-hit-for-city-retirees/CrohqdGBMhzj21CujW3LLO/story-1.html
  4. ^ Pub. L. No. 251, 73d Cong., 2d Sess., 48 Stat. 798 (1934).
  5. ^ Public Law Research Institute: Municipal Bankruptcy: State Authorization Under the federal Bankruptcy Code
  6. ^ 298 U.S. 513, 56 S. Ct. 892, 80 L. Ed. 1309 (1936).
  7. ^ An Act to Amend an Act Entitled An Act to Establish a Uniform System of Bankruptcy Throughout the United States,, Pub. L. No. 302, 75th Cong., 1st Sess., 50 Stat. 653 (1937).
  8. ^ 304 U.S. 27 (1938)(holding the Municipal Corporation Bankruptcy Act constitutional under both the Fifth and the Tenth Amendments)
  9. ^ An Act to Amend Chapter IX of the Bankruptcy Act to Provide by Voluntary Reorganization Procedures for the Adjustment of the Debts of Municipalities, Pub. L. No. 94-260, 94th Cong., 2d Sess. (1976).
  10. ^ See Steven Lessard & Richard Ngo, Riding the Juice Train to Bankruptcy: Ch. 9 Eligibility After In re Las Vegas Monorail Company, NORTON JOURNAL OF BANKRUPTCY LAW & PRACTICE, Vol. 20, No.3, Article 4 (2011); see also An Act to Amend the Bankruptcy Law to Provide for Special Revenue Bonds and for Other Purposes, PUB. L. NO. 100-597 (1988); Municipal Bankruptcy Amendments, Pub L. No 100597 (1988); 4 COLLIER ON BANKRUPTCY ¶ 902.01A, 902-3 (15th ed. 1996)
  11. ^ In re City of Vallejo, 08-26813-A-9 (E. Dist. Calif.).
  12. ^ "Contracts Now Seen as Being Rewritable". The New York Times. 2009-03-31. 
  13. ^ http://www.law.com/jsp/article.jsp?id=1202429132330
  14. ^ P.G. explores bankruptcy option
  15. ^ Bankruptcy Bloodbath May Hit Muni Owners: Joe Mysak (Update1)
  16. ^ Municipal Bankruptcy: State Authorization Under the Federal Bankruptcy Code, PLRI
  17. ^ HAMILTON CREEK METROPOLITAN DISTRICT v. BONDHOLDERS COLORADO BONDSHARES
  18. ^ a b Van Anglen, Jim; Condon, Bernard (November 9, 2011). "Alabama county files for largest municipal bankruptcy". CBS News (Montgomery, Alabama). Associated Press. Retrieved 2011-11-10. 
  19. ^ Staff. Consumer Price Index (estimate) 1800–2012. Federal Reserve Bank of Minneapolis. Retrieved March 31, 2013.
  20. ^ a b Church, Steven; Selway, William; McCarty, Dawn (Wed Nov 09 23:46:41 GMT 2011). "Jefferson County Alabama Files Bankruptcy". Bloomberg.com (New York City: Bloomberg L.P.). Retrieved 2011-11-10. 
  21. ^ Analysis of Factors Associated with the Municipal Bankruptcy of Pichard, Alabama
  22. ^ The City of Desert Hot Springs filed Chapter 9 bankruptcy papers in late December, making it the first California city in at least 25 years to seek bankruptcy protection[dead link]
  23. ^ California City files for bankruptcy protection[dead link]
  24. ^ Millport making a comeback
  25. ^ After 6 years, Los Osos CSD bankruptcy plan approved
  26. ^ Oklahoma: Speed Trap Town Goes Bankrupt
  27. ^ Bankruptcy filed, tiny town hopes to rise again
  28. ^ Vallejo's path to bankruptcy - Vallejo Times Herald
  29. ^ [1]
  30. ^ Washington Park seeks bankruptcy protection[dead link]
  31. ^ Prichard files for bankruptcy protection again
  32. ^ Rhode Island's Central Falls files for bankruptcy
  33. ^ Selway, William (Fri Sep 16 17:41:31 GMT 2011). "Jefferson County’s Journey From Sewer-Bond Scandal to Settlement: Timeline". Bloomberg.com (New York City: Bloomberg L.P.). Retrieved 2011-11-10. 
  34. ^ "Stockton, California files for bankruptcy". Reuters. June 28, 2012. 
  35. ^ Rhode Island city overseer starts by firing mayor[dead link]
  36. ^ Hospitals file for Chapter 9 bankruptcy : North County Times - Californian
  37. ^ Rauber, Chris (2006-10-02). "Doctors Medical Center files for Chapter 9 bankruptcy protection". 
  38. ^ SAN JOSE SCHOOLS CAN CUT PAY, U.S. BANKRUPTCY COURT RULES
  39. ^ VisionLand debt prompts Chapter 9 filing
  40. ^ Pierce County's low-cost housing filing for bankruptcy
  41. ^ Sarpy County SID Files For Bankruptcy
  42. ^ New York City Off-Track Betting Corporation Facts
  43. ^ Connector 2000 Association Files Chapter 9 Bankruptcy
  44. ^ In re Richmond Unified Sch. Dist., 133 B.R. 221, 224 (Bankr. N.D. Cal. 1991)
  45. ^ http://business-finance-restructuring.weil.com/chapter-9/bridgeport-%E2%80%93-distressed-but-not-insolvent/#axzz23Dly2TDy
  46. ^ Letter requesting permission from the Governor of Michigan for Hamtramck to declare bankruptcy[dead link]
  47. ^ CORRECT: Michigan Forbids City To Seek Municipal Bankruptcy[dead link]
  48. ^ Judge throws out Ill. village's bankruptcy case
  49. ^ Boise County files for bankruptcy[dead link]
  50. ^ Judge rejects Boise County’s bankruptcy filing
  51. ^ Tavernise, Sabrina (12 October 2011). "City Council in Harrisburg Files Petition of Bankruptcy". The New York Times. Retrieved 16 October 2011. 
  52. ^ Judge Rejects Harrisburg Bankruptcy Move
  53. ^ Three Decades After Cleveland Defaulted on Its Debts, Cities Face Recession Budget Woes
  54. ^ Las Vegas Monorail Determined Ineligible for Chapter 9 Bankruptcy
  55. ^ Steven Lessard & Richard Ngo, Riding the Juice Train to Bankruptcy: Chapter 9 Eligibility After In Re Las Vegas Monorail Company, NORTON ANNUAL SURVEY OF BANKRUPTCY LAW, Vol. 20, No.3, Article 4 (2011).

External links [edit]

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