It seems like everyone is going bankrupt these days, as the fallout from the Great Recession continues. Not only have many individuals and companies gone busto, there are entire cities that have made the trip to bankruptcy court to settle their debts. The most prominent example of this phenomenon is Stockton, California, which filed for bankruptcy in July 2012; with a population around 290,000, it’s the biggest city ever to resort to this option. Now there’s talk that Detroit, Michigan—a city that has become a symbol of governmental mismanagement and general decay—may be headed toward bankruptcy, which would beat Stockton’s record.
Does municipal bankruptcy differ from individual or corporate bankruptcy? It certainly does. In fact, U.S. Bankruptcy Code has carved out a special section just for these cases: Chapter 9, reserved for municipal entities—that is, cities, counties, townships, school districts, and so on. Like Chapters 11 and 13, this is a “reorganization” option intended to find a way for the debtor to repay debts; it does not allow for straight liquidation. This permits the municipality to continue providing its various services and functions while its debt load is reconfigured. In many cases, the municipality must obtain permission from the state government before filing for Chapter 9.
For individuals, though, Chapter 7, 13, or (less commonly) 11 is the way to go. Long Island bankruptcy attorney Ronald D. Weiss can help decide the best option for you. Call today.