If we’d take a brief glance to the Chapter 9 Bankruptcy definition, we will see this chapter stands aside from the other three ones. Having the lowest usage in the US, Chapter 9 is purposed specifically for financially distressed municipalities. The bankruptcy court considers the cases from the towns, cities, districts, counties, utilities and other municipality units.
There are few reasons to file for Chapter 9 Bankruptcy in times of financial stress. When the municipality is required to provide the basic services under any circumstances, while having the revenue decreased critically, the question about filing for bankruptcy arises. This could be possible only if the certain municipality is officially authorized to be a debtor according to the State law.
Successful filing for Chapter 9 takes tremendous efforts and requires cooperation and approval of all participants of the case. The difficulties with the idea to file for bankruptcy start when the workers and creditors realize the possible consequences of the case (job at stuck, frozen flow of funds, etc.) Therefore, US bankruptcy court requires from the municipality an intense work in order to convince all parties that reorganization plan will be beneficial for everyone.
Once negotiations are held and agreement achieved, it’s time for the paperwork and reorganization plan’s approval.
What power the bankruptcy court has and has not over the debtor, filing for Chapter 9?
- The US bankruptcy court may not restrict or prohibit daily municipality’s activity.
- The debtor does not need to receive an approval from the court for taking new loans.
- The court does not control or restrict the debtor from employing the new staff.
- The bankruptcy court still may supervise the debtor’s activity in order to make sure it goes in full accordance with the reorganization plan.
As you can see, the Chapter 9 Bankruptcy definition and it’s purpose are very similar to chapters 11 and 13. It’s an opportunity for the debtor to reduce financial burden by decreasing interest rates and prolong the term of payments.
Anyway, the process of bankruptcy is as expensive as time- and efforts-consuming, therefore bankruptcy should be considered only as the final, critical option.