Eric Lester Leinbach, Esquire
|Filing Bankruptcy for Government ? Yep! Given the state of governmental finances and the economy there are probably more municipalities that will file Bankruptcy in the near future. In order to file Bankruptcy under Chapter 9 you must be an insolvent municipality, authorized by state law to file a Bankruptcy. A municipality is a political subdivision. A village, town, city, borough, township, or county are political subdivisions. The other political subdivisions that file bankruptcy are trash, garbage, and sewer authorities.
In the last few years there have been some notable bankruptcies filed by municipalities. The Jefferson County bankruptcy in Alabama, which is home to Birmingham, Alabama, created quite a stir. More than a few government officials and contractors were charged, convicted and went to jail because of the corruption involved in the cities new sewer system. Here is a list of some of the recent bankruptcy filings by municipalities. The list doesn't include them all, and there certainly will be more in the near future.
Mammoth Lakes, California Status: Filed for bankruptcy Date: 7/3/2012 Debt or Deficit Amount: $43 million Mammoth Lakes, a small California resort town, voted to file for bankruptcy July 3. The city has been unable to pay a $43 million legal judgment resulting from a 1997 property development dispute.
Stockton, California Status: Filed for bankruptcy Date: 6/28/2012 Debt or Deficit Amount: $26 million Stockton, Calif., filed for bankruptcy after being unable to reach an agreement with its creditors. The city must pay steep pension and payroll costs while taking in less money from property taxes.
Central Falls, Rhode Island Status: Filed for bankruptcy Date: 8/1/2011 Debt or Deficit Amount: $21 million of outstanding debt, plus unfunded pension liabilities State-appointed receiver Robert Flanders filed for bankruptcy protection and has since cut pensions for retirees.
Harrisburg, Pennsylvania Status: Bankruptcy filing rejected, defaulted on payments Date: 3/10/2012 Debt or Deficit Amount: More than $300 million Harrisburg skipped about $5 million in debt payments in March. Much of the city's debt is related to a failed waste-to-energy plant.
Jefferson County Status: Filed for bankruptcy Date: 11/9/2011 Debt or Deficit Amount: More than $4 billion The county has laid off about 500 workers since declaring for bankruptcy in November 2011. A federal judge ruled in March that the bankruptcy was allowed under state law.
The city of Detroit, Michigan filed for bankruptcy under Chapter 9 of the Bankruptcy Code on July 18, 2013. Detroit''s bankruptcy was the largest municipal bankruptcy in history. After decades of fiscal mismanagement, and some would say corruption, Detroit finally took the plunge.
Who will be next, Puerto Rico, Newark, New Jersey, or Atlantic City, New Jersey ? Time will tell.
The above recitation of recent bankruptcy filings by municipalities is courtesy of governing.com These fellows keep track of municipal bankruptcy filings; see their website for recent developments. Which municipality files bankruptcy next? The city of Scranton Pennsylvania would certainly like to file bankruptcy. However, the Commonwealth, Pennsylvania just doesn't like it cities filing bankruptcy and won't let them. The city of Harrisburg Pennsylvania has tried to file bankruptcy without the permission of the Commonwealth of Pennsylvania and their bankruptcy was thrown court for just that reason. You see municipalities and political subdivisions cannot file bankruptcy without the approval of their state. Most states do not permit municipalities to file bankruptcy, and will not allow them to do so.
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Disclaimer and Limitation of Use : The information on these pages is not intended as legal advice but rather general information. Reading or using the information on this website does not establish an Attorney-Client relationship. Such a relationship can only be created with the express written consent of an Attorney and the Client. The Bankruptcy Statute and Court Rules are complex. The answers to frequently asked questions at this site are only intended to provide a general information concerning the bankruptcy statute and rules. Individuals should always consult with an experienced bankruptcy Lawyer before making any decision or taking any action. I offer a free initial consultation by appointment only. I am licensed to practice in both Pennsylvania and New Jersey.