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Chapter 9
Practical Law Glossary Item 1-617-9576 (Approx. 3 pages)
Glossary
Chapter 9
The chapter of the Bankruptcy Code dealing exclusively with the reorganization of municipalities. A Municipality is broadly defined as a political subdivision or public agency or instrumentality of a state (§ 101(40), Bankruptcy Code), can include cities, towns, villages, counties, taxing districts, municipal utilities, and school districts. Municipality also includes revenue-producing bodies that provide services paid for by users rather than by general taxes, such as bridge authorities, highway authorities, and gas authorities. Chapter 9 allows an insolvent municipality to reorganize by extending the timeline to repay its debts, to refinance its debt, or reduce the principal or interest on existing debts. The assets of a municipality cannot be liquidated under Chapter 9.
A Municipality is eligible to file for Chapter 9 under section 109(c) of the Bankruptcy Code if it:
- Is specifically authorized to file for Chapter 9 under state law.
- Is insolvent, as defined in section 101(32)(c) of the Bankruptcy Code.
- Desires to effect a plan to adjust its debts, and either:
- obtains agreement of most impaired creditors in each class;
- makes a good faith attempt to negotiate with creditors if no agreement was obtained before the filing;
- is unable to negotiate with creditors because it would be impractical to obtain an agreement; or
- reasonably believes that a creditor may attempt to obtain a preference.