With several big name cities around the country taking their debt problems to the bankruptcy court, many people are left wondering exactly what a Chapter 9 bankruptcy case is really about.
A city is just like any financial entity, it is subject to the ebb and flow of the economy. Although most people expect that their governing city operates on solid financial footing, the truth is that many cities have fought long and hard to keep up appearances in the recession. When debts become overwhelming and revenue sinks, a city could be forced to take more serious measures for financial balance.
Chapter 9 is the section of the Bankruptcy Code outlining the process by which cities, towns, counties, school and taxing districts can seek help with debt reorganization. Defined as a “municipality”, these entities are allowed to extend timelines for repaying debt obligations, secure debt refinancing options like bonds, and revamp operation costs in order to resume services.
The goal of Chapter 9 is to keep the municipality functioning and in full operation as debt obligations are resolved. This is an important aspect of the Chapter 9 process because residents depend on the vital services provided by municipalities and the jobs created by such entities are directly influential on the health of the local economy. Protecting the interests of a municipality serves the interests of all parties.