Chapter 9 Bankruptcy: A Brief Primer

This blog recently covered the theoretically Chapter 8 Bankruptcy, which would afford an alternative to federal bailouts for financially struggling states. In this post, I will briefly discuss Chapter 9. This is not a bankruptcy option that individuals have to worry about, but it is important to understand the types of bankruptcy out there in order to save time and effort when considering your options and to understand how municipalities facing financial struggles might wind up in that boat despite taxpayer money, and the options they have to save themselves and those who choose to call a particular municipality “home.”

Municipalities – cities and towns – can wind up in debt just as easily as an individual or business. This often occurs because of underfunding, overspending, too many 0obligations/debts, and even as the result of unexpected disasters. Whether than go bust, fold-up, and declare a ghost town, Chapter 9 offers an option for municipalities to declare bankruptcy and reorganize their debts. This is an opportunity to buy time, renegotiate, and allow the municipality to gain some control over their finances and to improve their financial standing.

Undoubtedly, no one wants to thin k their city or town can face financial issues. It upsets many people and leads them to believe that their tax dollars are being misspent and that the municipality abuses funds. However, financial irresponsibility is not always the cause. Cities and towns have many obligations and those obligations often leave a budget stretched paper-thin, requiring often insurmountable credit and debt to meet those many obligations.

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