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Chapter 9 of the Bankruptcy Code provides a framework for eligible local public entities to restructure debt. It enables municipalities unable to pay its debts as they come due to continue to provide essential services to residents while working out a plan to adjust its debts. To avoid disruption of necessary services, Chapter 9 is intended to facilitate the continuance of insolvent municipalities rather than their dissolution. Similar to Chapter 11 bankruptcy reorganization for nongovernmental entities, two primary benefits of a Chapter 9 filing are:
There are fundamental differences, however, between municipal debt adjustment and bankruptcy reorganization of nongovernmental entities. A city, for example, is not a business enterprise operating for a profit. Local public entities exist to provide residents with public services. Unlike a corporation, a municipality has no shareholders, and it may not be completely liquidated, with the proceeds used to pay creditors.
SulmeyerKupetz has substantial experience in municipal debt adjustment matters. Members of the firm have written leading articles published on the subject. SulmeyerKupetz represented the Ventura Port District and Tri-City Mental Health Center in their successful Chapter 9 municipal debt adjustment cases, the Orange County Transportation Authority in connection with the Orange County Chapter 9 case, a group of cities that were creditors in the Chapter 9 case of Desert Hot Springs, and the Town of Mammoth Lakes in out-of-court debt restructuring negotiations. In recent years, SulmeyerKupetz has represented a number of other local public entities in out-of-court negotiations with creditors and the firm has also represented other governmental entities in connection with Chapter 9 cases.
Chapter 9 is to be utilized as a last resort. SulmeyerKupetz is well positioned to assist local public entities in the process that should be followed to maximize the opportunity to resolve financial crises outside of court.