:Chapter 9, Title 11, United States Code
{{short description|Chapter of the United States Bankruptcy Code}}
{{Use mdy dates|date=February 2025}}
{{USBankruptcy}}
Chapter 9, Title 11, United States Code is a chapter of the United States Bankruptcy Code, available exclusively to municipalities and assisting them in the restructuring of their debt. On July 18, 2013, Detroit, Michigan became the largest city in the history of the United States to file for Chapter 9 bankruptcy protection. Jefferson County, Alabama, in 2011, and Orange County, California, in 1994, are also notable examples. The term 'municipality' denotes "a political subdivision or public agency or instrumentality of a State," but does not include a state itself.{{Usc-clause|11|101|(40)|}})( States are therefore unable to file for bankruptcy even though they have defaulted in their obligations.
History
{{update|the number of Chapter 9 bankruptcies filed since 2011|date=August 2016}}
| class="wikitable"
|+Recent Chapter 9 filing counts ! Year !! Filings | |
| 2012 | 20 |
| 2013 | 9 |
| 2014 | 12 |
| 2015 | 4 |
| 2016 | 8 |
| 2017 | 7 |
| 2018 | 4 |
| 2019
|6 | |
| 2020
|4 | |
| 2021
|4 | |
| 2022
|3 |
The first municipal bankruptcy legislation was enacted in 1934 during the Great Depression.{{cite web |title=Chapter 9 - Bankruptcy Basics |url=https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-9-bankruptcy-basics |website=United States Courts |access-date=14 November 2019}} Although Congress attempted to draft the legislation so as not to interfere with the sovereign powers of the states guaranteed by the Tenth Amendment to the Constitution, the Supreme Court held the 1934 Act unconstitutional as an improper interference with the sovereignty of the states. Congress enacted a revised Municipal Bankruptcy Act in 1937, which was upheld by the Supreme Court. The law has been amended several times since 1937.
From 1937 to 2008 there were fewer than 600 municipal bankruptcies.[http://www.muninetguide.com/articles/Vallejo-Bankruptcy-Filing-Garner-282.php MuniNetGuide: Vallejo Bankruptcy Filing Garners Attention in Municipal Finance Circles] {{webarchive |url=https://web.archive.org/web/20090106054835/http://www.muninetguide.com/articles/Vallejo-Bankruptcy-Filing-Garner-282.php |date=January 6, 2009 }} As of June 2012, the total was around 640.{{cite web|last=Wozniacka |first=Gosia |url=http://www.boston.com/2012/06/27/stockton-bankruptcy-hard-hit-for-city-retirees/CrohqdGBMhzj21CujW3LLO/story-1.html |title=Stockton bankruptcy is hard hit for city retirees |publisher=Boston.com |date=2012-06-27 |access-date=2013-07-20}} In 2012 there were twenty chapter 9 bankruptcies in the United States, and nine petitions have been filed in 2013.USAtoday, July 22, 2013, Page B1, "Detroit woes rattle muni bond market" by Matt Krantz Since 2010, 81 petitions have been filed.{{Cite web |title=Chapter 9 municipality bankruptcies U.S. 2022 |url=https://www.statista.com/statistics/1118479/bankruptcy-filings-us-chapter-9-municipality/#:~:text=In%202022,%20there%20were%20three,when%20there%20were%2020%20filings. |access-date=2024-09-08 |website=Statista |language=en}}
Previous to the creation of Chapter 9 bankruptcy, the only remedy when a municipality was unable to pay its creditors was for the creditors to pursue an action of mandamus, and compel the municipality to raise taxes.Ashton v. Cameron County Water Improvement Dist., 298 U.S. 513, 534 (1936) (Cardozo, J., dissent) During the Great Depression, this approach proved impossible, so in 1934, the Bankruptcy Act was amended to extend to municipalities.Pub. L. No. 251, 73d Cong., 2d Sess., 48 Stat. 798 (1934).[http://w3.uchastings.edu/plri/fal95tex/muniban.html Public Law Research Institute: Municipal Bankruptcy: State Authorization Under the federal Bankruptcy Code] {{webarchive|url=https://web.archive.org/web/20081212143208/http://w3.uchastings.edu/plri/fal95tex/muniban.html |date=2008-12-12 }} The 1934 Amendment was declared unconstitutional in Ashton v. Cameron County Water District.298 U.S. 513, 56 S. Ct. 892, 80 L. Ed. 1309 (1936).
However, a revised act remedying the constitutional deficiencies was passed again by Congress in 1937 and codified as Chapter X of the Bankruptcy Act (later redesignated as Chapter IX).An Act to Amend an Act Entitled An Act to Establish a Uniform System of Bankruptcy Throughout the United States,, Pub. L. No. 302, 75th Cong., 1st Sess., 50 Stat. 653 (1937). This revised act was upheld as constitutional by the Supreme Court in United States v. Bekins.304 U.S. 27 (1938)(holding the Municipal Corporation Bankruptcy Act constitutional under both the Fifth and the Tenth Amendments)
Chapter 9 was largely unchanged until it was amended in 1976 in response to New York City's financial crisis.An Act to Amend Chapter 9 of the Bankruptcy Act to Provide by Voluntary Reorganization Procedures for the Adjustment of the Debts of Municipalities, Pub. L. No. 94-260, 94th Cong., 2d Sess., 90 Stat. 315 (1976). The changes made in 1976 were adopted nearly identically in the modern 1978 Bankruptcy Code as Chapter 9.
In 1988, Chapter 9 was amended by Congress to provide statutory protection from § 552(a) lien stripping provisions to revenue bonds issued by municipalities. This was addressed with the classification of these bonds as "special revenues" under the newly minted § 928(a) and § 922(d) exemption of special revenues from the automatic stay provisions of § 362.See Steven Lessard & Richard Ngo, Riding the Juice Train to Bankruptcy: Ch. 9 Eligibility After In re Las Vegas Monorail Company, NORTON JOURNAL OF BANKRUPTCY LAW & PRACTICE, Vol. 20, No.3, Article 4 (2011); see also An Act to Amend the Bankruptcy Law to Provide for Special Revenue Bonds and for Other Purposes, PUB. L. NO. 100-597 (1988); Municipal Bankruptcy Amendments, Pub L. No 100597 (1988); 4 COLLIER ON BANKRUPTCY ¶ 902.01A, 902-3 (15th ed. 1996)
To prevent overlap with Chapter 11, § 101(41) of the U.S. Bankruptcy Code (11 U.S.C. § 101(41)) defines the term "person" to exclude many "governmental units" as defined in § 101(27), and "municipality" as defined in § 101(40).
Features of Chapter 9
{{Expand section|date=April 2009}}
While in many ways similar to other forms of bankruptcy reorganization (esp. Chapter 11),Chapter 9 incorporates the provisions of numerous sections from other chapters of the Bankruptcy Code. See Title 11, United States Code, Section 901. Chapter 9 has a number of unique characteristics. Because municipalities are entities of State governments, the power of the bankruptcy court is limited to some extent by the Tenth Amendment to the United States Constitution.{{cite book|url=http://www.orrick.com/Events-and-Publications/Documents/1736.pdf|author1=John Knox|author2=Marc A. Levinson|title=Municipal Bankruptcy: Avoiding and Using Chapter 9 in Times of Fiscal Stress|pages=21–22|publisher=Orrick, Herrington & Sutcliffe, LLP|year=2009|access-date=2013-07-21|archive-url=https://web.archive.org/web/20140823235434/http://www.orrick.com/Events-and-Publications/Documents/1736.pdf|archive-date=2014-08-23|url-status=dead}}
=Collective bargaining=
Municipalities' ability to re-write collective bargaining agreements is much greater than in a corporate Chapter 11 bankruptcyIn re City of Vallejo, 08-26813-A-9 (E. Dist. Calif.). and can trump state labor protections,{{cite news| url=https://www.nytimes.com/2009/03/31/business/economy/31contracts.html?hp | work=The New York Times | title=Contracts Now Seen as Being Rewritable | date=2009-03-31}} allowing cities to renegotiate unsustainable pension or other benefits packages negotiated in flush times.{{cite web|author=Pamela A. MacLean All Articles |url=http://www.law.com/jsp/article.jsp?id=1202429132330 |title=In a First, Bankruptcy Judge Rules Calif. City Can Void Union Contracts |publisher=Law.com |date=2009-03-17 |access-date=2013-07-20}}
= Authorization for filing of municipal bankruptcies =
Section 109(c) of the U.S. Bankruptcy Code provides that a municipality may be a debtor in a Chapter 9 bankruptcy case only if the municipality is specifically authorized to be a debtor by State law, or by a governmental officer or organization empowered by State law to authorize the municipality to be a debtor.See {{usc|11|109}}. In 23 states, Chapter 9 authorization laws are either unclear or otherwise prohibited for municipalities. Three states (Colorado, Illinois, and Oregon) grant a very limited authorization to file for bankruptcy. Illinois, for example, only grants Chapter 9 authorization to the Illinois Power Agency.
A total of 12 states authorize Chapter 9 upon conditions met and further action of state, officials or other entity; and the remainder (12) specifically authorize bankruptcy.{{Cite web|url=http://www.governing.com/gov-data/state-municipal-bankruptcy-laws-policies-map.html|title=Municipal Bankruptcy State Laws|website=www.governing.com|date=25 January 2013|access-date=2017-06-12}}[http://w3.uchastings.edu/plri/fal95tex/muniban.html#F50 Municipal Bankruptcy: State Authorization Under the Federal Bankruptcy Code, PLRI] {{webarchive|url=https://web.archive.org/web/20081212143208/http://w3.uchastings.edu/plri/fal95tex/muniban.html |date=2008-12-12 }}
= Inclusion of states in Chapter 9 =
{{Main|State defaults in the United States}}
Neither Chapter 9 nor any other part of U.S. bankruptcy law allows a state to file for bankruptcy, although states have defaulted on their obligations.{{Cite web|title=Why Mitch McConnell Wants States to Go Bankrupt|url=https://www.theatlantic.com/ideas/archive/2020/04/why-mitch-mcconnell-wants-states-go-bankrupt/610714/|last=Frum|first=David|date=2020-04-25|website=The Atlantic|language=en-US|access-date=2020-05-02}} The last U.S. state default took place in 1933, when Arkansas defaulted on its bonds.{{Cite news|last=Davey|first=Monica|date=2011-01-22|title=The State That Went Bust|language=en-US|work=The New York Times|url=https://www.nytimes.com/2011/01/23/weekinreview/23davey.html|access-date=2020-05-02|issn=0362-4331}}
Certain politicians and scholars have argued that the law should be amended to allow states to file for bankruptcy.{{Cite web|title=Better off bankrupt|url=https://www.latimes.com/opinion/la-xpm-2011-jan-27-la-oe-gingrich-bankruptcy-20110127-story.html|date=2011-01-27|website=Los Angeles Times|language=en-US|access-date=2020-05-02}}{{Cite news|last=Skeel|first=David|date=2011-01-18|title=A Bankruptcy Law—Not Bailouts—for the States|language=en-US|work=The Wall Street Journal|url=https://www.wsj.com/articles/SB10001424052748703779704576073522930513118|access-date=2020-05-02|issn=0099-9660}} Proponents say that an orderly bankruptcy is a better solution than the two alternatives: (1) defaults, which are violations of debt obligations outside of the bankruptcy process), and (2) bailouts by the federal government.{{Cite journal|last=Skeel|first=David|date=2012|title=States of Bankruptcy|url=https://scholarship.law.upenn.edu/faculty_scholarship/372/|journal=U. Chi. L. Rev.|volume=79|pages=677}} Opponents, including representatives of the National Governors Association, say that amending the law to allow states to seek bankruptcy protection could create doubts in the municipal bond market.
Notable Chapter 9 bankruptcies
Note: Population refers to the population served at the time of the bankruptcy and may not be the same as its current population. Dollar values are as reported at the time and do not reflect current value.
===Notable defaults that did not result in Chapter 9 bankruptcy===
- Cleveland, Ohio, 1978, dispute with city creditors over sale of a utility.[https://www.usnews.com/articles/news/national/2008/12/15/three-decades-after-cleveland-defaulted-on-its-debts-cities-face-recession-budget-woes.html Three Decades After Cleveland Defaulted on Its Debts, Cities Face Recession Budget Woes] {{webarchive|url=https://web.archive.org/web/20081217064931/http://www.usnews.com/articles/news/national/2008/12/15/three-decades-after-cleveland-defaulted-on-its-debts-cities-face-recession-budget-woes.html |date=2008-12-17 }}
See also
- Community Act 47, Financially Distressed Municipalities Act, Commonwealth of Pennsylvania.
- Super Chapter 9
References
{{reflist|2}}
External links
- GASB [http://www.gasb.org/exp/ed_chapter9_bankruptcies.pdf Accounting and Financial Reporting for Chapter 9 Bankruptcies] {{Webarchive|url=https://web.archive.org/web/20110605234648/http://www.gasb.org/exp/ed_chapter9_bankruptcies.pdf |date=2011-06-05 }}
- [http://www.abiworld.org/statcharts/Ch9filings.pdf Number of Ch. 9 filings by year data from the American Bankruptcy Institute] {{Webarchive|url=https://web.archive.org/web/20100215121051/http://www.abiworld.org/statcharts/Ch9filings.pdf |date=2010-02-15 }}
- [http://www.auditor.state.oh.us/services/lgs/fiscalwatch/government.htm Ohio Local Government Fiscal Emergency/Fiscal Watch Law Fact Sheet]
- [https://web.archive.org/web/20110716145723/http://www.la-par.org/Publications/PDF/Municipal%20Bankruptcy.pdf Municipal Bankruptcy in Perspective, A Joint Publication of PAR and BGR]
- [http://www.michigan.gov/documents/treasury/FiscalEmerg_271926_7.pdf Michigan Public Act 72 of 1990, Local Government Fiscal Responsibility Act, and the Appointment of Emergency Financial Managers]
- [https://www.law.cornell.edu/uscode/html/uscode11/usc_sup_01_11_10_9.html Chapter 9, Title 11, United States Code] at the Cornell University Law School Legal Information Institute
- [http://www.gfoaa.org/docs/CGAT/CGAT%20Muni%20BR%20Presentation.pdf Municipal Bankruptcy in Alabama - Kerem Deal]{{dead link|date=May 2017 |bot=InternetArchiveBot |fix-attempted=yes }}
- [https://web.archive.org/web/20120323022334/http://etd.auburn.edu/etd/bitstream/handle/10415/956/DEAL_KEREN_35.pdf?sequence=1 AN EXAMINATION OF MUNICIPAL FINANCE REFORM REGARDING MUNICIPAL BANKRUPTCIES IN THE UNITED STATES - Kerem Deal]
- [http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter9.aspx Administrative Office of the U.S. Courts Bankruptcy Basics -- Municipality Bankruptcy]
{{Title 11 of the United States Code}}
Category:Title 11 of the United States Code