Home » Women's Interest Articles » Vallejo Emerges from Chapter 9 Bankruptcy
Vallejo Emerges from Chapter 9 Bankruptcy
Learn more about Chapter 9 bankruptcy and how the City of Vallejo used bankruptcy protection to recover from the scourge of the foreclosure crisis.
December 17, 2011 /Womens Interest PR News/ -- While media outlets report on the foreclosure crisis and how it forced many homeowners into bankruptcy, municipalities also suffered as diminished tax revenues forced some cities and counties to seek bankruptcy protection as well. The City of Vallejo faced this reality at the height of the crisis. In 2008, it filed for Chapter 9 bankruptcy. The housing market collapse affected tax revenues and the city could not afford to pay city employees and meet other financial obligations.
Chapter 9 bankruptcy allows municipalities to seek protection from lawsuits and other collection actions, while creating a plan to reorganize and repay debts. The term "municipality" includes political subdivisions and public agencies such as cities, counties, townships, school districts, and public highway authorities. Municipalities may turn to bankruptcy when they cannot meet financial obligations to unions and other public employees, and they have reached an impasse on reducing employees' salary and/or pension payments.
While they may not be as common as Chapter 7 or Chapter 13 cases, a number of municipalities have sought bankruptcy protection. In 1994, Orange County, California, filed for Chapter 9 protection and successfully reorganized in 1995. With a debt load of $1.7 billion, that was the largest Chapter 9 case in U.S. history until Jefferson County, Alabama filed in November, 2011 with over $4 billion in debt. However, not all Chapter 9 petitions are accepted, as was the case with Harrisburg, Pennsylvania's recent filing. A federal judge ruled that the state's fiscal code barred the city from filing bankruptcy.
Nevertheless, Chapter 9 is similar to other bankruptcy chapters in several respects. Municipalities are granted an automatic stay from creditors, they must file a repayment plan to be approved by the court, and a discharge is granted once the plan is confirmed. However, Chapter 9 does not allow for liquidation and distribution of the municipality's assets to creditors, as it would violate states' Tenth Amendment sovereignty. The court also may not infringe upon or interfere with a municipality's political powers or revenues. Nevertheless, a municipality may seek the court's assistance in implementing its plan, as long as the plan meets the requirements of Chapter 9.
In July, a federal judge approved an ongoing repayment plan for the city, allowing it to emerge from bankruptcy. The police and fire departments are nearly half their previous sizes. The city also has new public employee contracts, and works within a $65 million budget.
If you have questions about how Chapter 9 bankruptcy may affect your rights as an employee, or whether a municipality may seek such protection, an experienced attorney can advise you.
Article provided by Weintraub & Selth, A Professional Corporation
Visit us at www.wsrlaw.net
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