Chapter 9 Bankruptcy filings can only be made by a municipality. The purpose of a Chapter 9 filing is to allow the municipality to reorganize and get creditors to agree to a new payment plan. A Chapter 9 debtor is not just a place that can be found on a map, because the code allows for a broad interpretation of a taxing authority.
The following is the list of entities that may file for Chapter 9 bankruptcy:
Chapter 9 may seem similar to Chapter 11 Bankruptcy, which also allows a court-approved reorganization plan with creditors agreeing to a new payment plan. But there are a number of significant differences that are unique to municipal bankruptcy filings. There is no liquidation option under Chapter 9, because the Constitution's 10th amendment forbids the federal government from interfering with state entities when the action in question (bankruptcy proceedings) are not defined in the Constitution.
The bankruptcy court does not have much else to do except approve the petition, accept the proposed reorganization plan and oversee the implementation. The court cannot reject a proposed plan or order asset liquidation. The court cannot interfere with the operations of the municipality and neither can it dictate how the debtor may use its property or revenues. Creditors who dissent may be forced into accepting the new plan.
Do you have additional questions about filing for a Chapter 9 bankruptcy? Our bankruptcy lawyers can help. Contact a bankruptcy law attorney today to learn more about how a Chapter 9 bankruptcy could possibly help you.