Chapter 9 Bankruptcy: The Solution that Causes Problems

Authors

Peter C. Alexander

First Page

323

Abstract

There is a little-known form of bankruptcy called a “Chapter 9,” reserved for insolvent cities, villages, and other municipalities. Occasionally, one reads about a city or a county that has filed for Chapter 9 relief, like Detroit, Michigan, or Orange County, California; however, it is very hard to file a Chapter 9 case, in part, because existing law requires a municipality to obtain permission from its home state before it can file for relief in the U.S. Bankruptcy Court. An additional constraint is that the only option municipalities have when seeking bankruptcy relief is to file a Chapter 9 because no other forms of bankruptcy relief are available to them. Because of these two realities and a few other obstacles that will be discussed in this Article, very few Chapter 9s are filed, even though many municipalities are struggling in the current economic climate and even though many municipalities could benefit from bankruptcy relief. This Article explores why it is so difficult to file a Chapter 9 bankruptcy, including the constitutional and structural impediments that prevent more municipalities from filing, and suggests that the current construction of Chapter 9 may violate the U.S. Constitution. Finally, the piece proposes a modification of current law and the possible repeal of Chapter 9 to make bankruptcy a reality for municipalities in need of financial relief.

Recommended Citation

Peter C. Alexander, Chapter 9 Bankruptcy: The Solution that Causes Problems, 19 Brook. J. Corp. Fin. & Com. L. 323 ().
Available at: https://brooklynworks.brooklaw.edu/bjcfcl/vol19/iss2/1