The perfect storm of declining tax revenues, underfunded pension plans, growing health care liabilities, unserviceable debt obligations, and the tightening of credit markets has municipalities across the country contemplating filing for chapter 9 bankruptcy protection. A recent Moody’s report on municipal bond defaults concluded that, of the 54 municipal defaults that have occurred since 1970, only two resulted in chapter 9 filings by Moody’s-rated municipal issuers.1 However, since the city of Vallejo, Calif., filed under chapter 9 in May 2009, Jefferson County in Alabama, the city of Harrisburg, Pa., and the New York City Off-Track Betting Corporation have filed or have seriously considered filing under chapter 9.
Chapter 9 provides troubled municipalities the opportunity to adjust their debts and to receive the protections similar to those chapter 11 affords corporations. However, because chapter 9 is seldom invoked, many practitioners and government officials are not familiar with its provisions. This column will focus on the basics of chapter 9 in the first installment of a two-part series on municipal bankruptcy.
Legislative History
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