What happens when a municipality files for Bankruptcy?

Even municipalities can acquire overwhelming debt. Look at Detroit ($18 Billion in debt) San Bernadino, CA ($1 Billion in debt) and Boise, Idaho.  In that case, these municipalities filed a Chapter 9 Bankruptcy case.

In order to file a Bankruptcy case, a municipality has to meet certain eligibility requirements. First, the municipality must have the authority from the State to become a debtor in Bankruptcy. The municipality must also be considered insolvent by the bankruptcy court meaning it can not pay its debts as they become due.  The municipality has to offer a debt restructuring plan that will allow it to repay some of the debt, and the creditors who hold a majority of the debts must approve of the Plan.

When a municipality files for bankruptcy, it is eligible for the Automatic Stay just like in any other bankruptcy case. All creditors are forbidden from proceeding with any collection measures against the municipality. 

If you require the services of an experienced bankruptcy attorney, contact the Law Offices of Allen A. Kolber, Esq.today to schedule a consultation and discuss your options.