Chapter 9
Municipality Bankruptcy
Eligibility
Only a "municipality" may file for relief under chapter 9. 11
U.S.C. § 109(c). The term "municipality" is defined in the
Bankruptcy Code as a "political subdivision or public agency or
instrumentality of a State." 11
U.S.C. § 101(40). The definition is broad enough to include cities,
counties, townships, school districts, and public improvement districts.
It also includes revenue-producing bodies that provide services which are
paid for by users rather than by general taxes, such as bridge
authorities, highway authorities, and gas authorities.
Section 109(c) of the
Bankruptcy Codes sets forth four additional eligibility requirements for
chapter 9:
1. the municipality must be specifically authorized to be a debtor by
State law or by a governmental officer or organization empowered by
State law to authorize the municipality to be a debtor;
2. the municipality must be insolvent, as defined in 11
U.S.C. § 101(32)(C);
3. the municipality must desire to effect a plan to adjust its debts;
and
4. the municipality must either:
- obtain the agreement of creditors holding at least a majority in
amount of the claims of each class that the debtor intends to impair
under a plan in a case under chapter 9;
- negotiate in good faith with creditors and fail to obtain the
agreement of creditors holding at least a majority in amount of the
claims of each class that the debtor intends to impair under a plan;
- be unable to negotiate with creditors because such negotiation is
impracticable; or
- reasonably believe that a creditor may attempt to obtain a
preference.
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