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The purpose of chapter 9 is to provide a financially-distressed municipality protection from its creditors while it develops and negotiates a plan for adjusting its debts.
Chapter 9 of the Bankruptcy Code outlines the bankruptcy laws and procedures for municipalities, such as cities, townships, and school districts. This article covers what Chapter 9 bankruptcy entails and how it compares to other kinds of bankruptcies.
Chapter 9 is a bankruptcy proceeding that provides financially distressed municipalities with protection from creditors by creating a plan to resolve the outstanding debt.
Chapter 9 bankruptcy offers multiple strategies to help municipalities struggling with excessive debt. These bankruptcies may affect public employees, people suing the city, pensioners, and other stakeholders.
Chapter 9 bankruptcy, also known as municipal bankruptcy, is a process that allows a municipality, county, or other taxing authority to seek protection from creditors in order to reorganize or adjust its debt obligations. Although rare, Chapter 9 cases can involve significant amounts of debt.
Chapter 9 offers financially distressed municipalities the ability to restructure their debt under federal bankruptcy protection.
Eligibility for Chapter 9 — Bankruptcy Law Basics. 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).
Chapter 9 bankruptcy is a bankruptcy for municipalities—cities, towns, counties and school districts, for example. Municipalities that file chapter 9 earn protection from creditors while they develop a plan for adjusting their debts.
Chapter 9, Title 11, United States Code is a chapter of the United States Bankruptcy Code, available exclusively to municipalities and assisting them in the restructuring of their debt. On July 18, 2013, Detroit, Michigan became the largest city in the history of the United States to file for Chapter 9 bankruptcy protection.
Chapter 9 of the U.S. Bankruptcy Code provides a legal remedy for insolvent municipalities to "provide adequate municipal services" to residents (In re City of Detroit). Specifically, the provisions permit municipalities to file for bankruptcy and address their fiscal shortcoming through a reorganization plan.