Chapter 9, Title 11, United States Code
Encyclopedia
Chapter 9, Title 11 of the United States Code is a chapter of the United States Bankruptcy Code
, available exclusively to municipalities and assists them in the restructuring of debts. The two largest municipal bankruptcies under Chapter 9 have been Jefferson County, Alabama
in 2011 and Orange County, California
in 1994.
, and compel the municipality to raise taxes. During the Great Depression
, this approach proved impossible, so in 1934, the Bankruptcy Act was amended to extend to municipalities. The 1934 Amendment was declared unconstitutional in Ashton v. Cameron County Water District,; however, a similar act was passed again by Congress in 1937 and codified as Chapter X of the Bankruptcy Act (later redesignated as Chapter IX). Chapter IX was largely unchanged until it was amended in 1976 in response to New York City's financial crisis. 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.
To prevent overlap Chapter 11, 11 USC § 101(41), of the US Bankruptcy code defines the term "person" to exclude many so called "governmental units" as defined in 11 USC § 101(27), and "Municipality" as defined in § 101(40).
Since 1937, there have been fewer than 600 municipal bankruptcies.
, 12
, and 13
), Chapter 9 has a number of unique characteristics. Because municipalities are entities of State governments, the power of Congress to adjust their debts through bankruptcy is limited considerably by the 10th and 11th Amendments.
"Congress did not extend the same projection [sic] to public employees that it did to those working in the private sector under Chapter 11 bankruptcy rules."
New Jersey, Connecticut, and Kentucky simply give a state appointed official or body the power to approve a filing.
petitioned to be put into receivership in 2010, as Rhode Island does not permit Chapter 9 filings. The state appointed receiver or overseer assumed all financial responsibilities from the mayor. Rhode Island's receivership law was rewritten to allow the receiver the ability to declare Chapter 9 Federal Bankruptcy and Central Falls has done exactly that.
Bankruptcy in the United States
Bankruptcy in the United States is governed under the United States Constitution which authorizes Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States." Congress has exercised this authority several times since 1801, most recently by adopting the Bankruptcy...
, available exclusively to municipalities and assists them in the restructuring of debts. The two largest municipal bankruptcies under Chapter 9 have been Jefferson County, Alabama
Jefferson County, Alabama
Jefferson County is the most populous county in the U.S. state of Alabama, with its county seat being located in Birmingham.As of the 2010 U.S. Census, the population of Jefferson County was 658,466...
in 2011 and Orange County, California
Orange County, California
Orange County is a county in the U.S. state of California. Its county seat is Santa Ana. As of the 2010 census, its population was 3,010,232, up from 2,846,293 at the 2000 census, making it the third most populous county in California, behind Los Angeles County and San Diego County...
in 1994.
History
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 mandamusMandamus
A writ of mandamus or mandamus , or sometimes mandate, is the name of one of the prerogative writs in the common law, and is "issued by a superior court to compel a lower court or a government officer to perform mandatory or purely ministerial duties correctly".Mandamus is a judicial remedy which...
, and compel the municipality to raise taxes. During the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
, this approach proved impossible, so in 1934, the Bankruptcy Act was amended to extend to municipalities. The 1934 Amendment was declared unconstitutional in Ashton v. Cameron County Water District,; however, a similar act was passed again by Congress in 1937 and codified as Chapter X of the Bankruptcy Act (later redesignated as Chapter IX). Chapter IX was largely unchanged until it was amended in 1976 in response to New York City's financial crisis. 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.
To prevent overlap Chapter 11, 11 USC § 101(41), of the US Bankruptcy code defines the term "person" to exclude many so called "governmental units" as defined in 11 USC § 101(27), and "Municipality" as defined in § 101(40).
Since 1937, there have been fewer than 600 municipal bankruptcies.
Features of Chapter 9
While in many ways similar to other forms of bankruptcy reorganization (Chapters 11Chapter 11, Title 11, United States Code
Chapter 11 is a chapter of the United States Bankruptcy Code, which permits reorganization under the bankruptcy laws of the United States. Chapter 11 bankruptcy is available to every business, whether organized as a corporation or sole proprietorship, and to individuals, although it is most...
, 12
Chapter 12, Title 11, United States Code
Chapter 12 of Title 11 of the United States Code, or simply chapter 12, is a chapter of the Bankruptcy Code. It is similar to Chapter 13 in structure, but it offers additional benefits to farmers and fishermen in certain circumstances, beyond those available to ordinary wage earners...
, and 13
Chapter 13, Title 11, United States Code
Chapter 13 of the United States Bankruptcy Code, codified under Title 11 of the United States Code, governs a form of bankruptcy in the United States that allows individuals to undergo a financial reorganization supervised by a federal bankruptcy court. The goal of Chapter 13 is to enable...
), Chapter 9 has a number of unique characteristics. Because municipalities are entities of State governments, the power of Congress to adjust their debts through bankruptcy is limited considerably by the 10th and 11th Amendments.
Collective bargaining
Municipalities' ability to re-write collective bargaining agreements are much easier than in a corporate Chapter 11 bankruptcy and can trump state labor protections allowing cities to renegotiate unsustainable pension or other benefits packages negotiated in flush times."Congress did not extend the same projection [sic] to public employees that it did to those working in the private sector under Chapter 11 bankruptcy rules."
Some states do not permit Chapter 9 filings without authorization
A municipality in some states must seek enactment of a specific statute particular to it authorizing the filing.New Jersey, Connecticut, and Kentucky simply give a state appointed official or body the power to approve a filing.
Partial list of municipal bankruptcies
- Note: Larger bankruptcies are in bold
- Hamilton Creek Metropolitan District, a quasi-municipal corporation in Summit County, ColoradoSummit County, ColoradoSummit County is the 19th most populous of the 64 counties of the state of Colorado of the United States. The county population was 23,538 at U.S. Census 2000. The county seat is Breckenridge...
, 1989 - Orange County, CaliforniaOrange County, CaliforniaOrange County is a county in the U.S. state of California. Its county seat is Santa Ana. As of the 2010 census, its population was 3,010,232, up from 2,846,293 at the 2000 census, making it the third most populous county in California, behind Los Angeles County and San Diego County...
, 1994, $1.7 billion (largest municipal bankruptcy until November 2011, and $ billion when adjusted for inflation), on interest rate-related losses (see Robert CitronRobert CitronRobert Lafee Citron is a Democratic Party politician who was the longtime Treasurer-Tax Collector of Orange County, California, when it declared Chapter 9 bankruptcy on December 6, 1994. Citron was the only Democrat to hold office in otherwise Conservative/Republican Orange County at the time...
). - Prichard, AlabamaPrichard, AlabamaPrichard is a city in Mobile County, Alabama, in the United States.Prichard borders the north side of Mobile, as well as the Mobile suburbs of Chickasaw, Alabama, Saraland, Alabama, and the unincorporated sections of Eight Mile, Alabama. As of 2005 Census Bureau estimates, the population of the...
, 1999, due to inability to pay pensions. - Desert Hot Springs, CaliforniaDesert Hot Springs, CaliforniaDesert Hot Springs, also known as DHS, is a city in Riverside County, California, United States. The city is located within the Coachella Valley geographic region, sometimes referred to as the Desert Empire. The population was 25,938 at the 2010 census, up from 16,582 at the 2000 United States...
, 2001, due to losing a housing discrimination lawsuit. - Millport, AlabamaMillport, AlabamaMillport is a town in Lamar County, Alabama, United States. At the 2000 census the population was 1,160.-Geography:Millport is located at .According to the U.S. Census Bureau, the town has a total area of , of which, of it is land and 0.18% is water....
, 2005, due to loss of sales tax revenues after factory closing. - Los Osos, CaliforniaLos Osos, CaliforniaLos Osos is an unincorporated area and a census-designated place located along the Pacific coast of San Luis Obispo County, California. The community is part of the 93402 and 93412 ZIP Codes and area code 805. The population was 14,276 at the 2010 census....
, 2006, debt related to a wastewater facility. - Moffett, OklahomaMoffett, OklahomaMoffett is a town in Sequoyah County, Oklahoma, United States. It is part of the Fort Smith, Arkansas-Oklahoma Metropolitan Statistical Area. The population was 179 at the 2000 census.-Geography:Moffett is located at ....
, 2007, due to loss of ability to issue traffic tickets. - Gould, ArkansasGould, ArkansasGould is a city in Lincoln County, Arkansas, United States. Its population was 1,305 at the 2000 U.S. census. It is included in the Pine Bluff, Arkansas Metropolitan Statistical Area...
, 2008, due to spending money withheld to pay employee income taxes. - Vallejo, CaliforniaVallejo, CaliforniaVallejo is the largest city in Solano County, California, United States. The population was 115,942 at the 2010 census. It is located in the San Francisco Bay Area on the northeastern shore of San Pablo Bay...
, 2008, due to inability to pay pension obligations. - Westfall Township, Pike County, Pennsylvania, 2009, due to losing a lawsuit
- Washington Park, IllinoisWashington Park, IllinoisWashington Park is a village in St. Clair County, Illinois, United States. The population was 5,345 at the 2000 census.-History:Washington Park filed for Chapter 9 bankruptcy protection in July, 2009, citing assets of less than $50,000 and debt of more than $1 million...
, 2009, due to high license fees for topless bars being ruled unconstitutional. - Prichard, AlabamaPrichard, AlabamaPrichard is a city in Mobile County, Alabama, in the United States.Prichard borders the north side of Mobile, as well as the Mobile suburbs of Chickasaw, Alabama, Saraland, Alabama, and the unincorporated sections of Eight Mile, Alabama. As of 2005 Census Bureau estimates, the population of the...
, 2009, due to inability to pay pensions and especially state mandated pension increases. - Central Falls, Rhode IslandCentral Falls, Rhode IslandCentral Falls is a city in Providence County, Rhode Island, United States. The population was 19,376 at the 2010 census. With an area of only , it is the smallest and most densely populated city in the smallest state, and the thirty-second most densely populated incorporated place in the United...
, August 2011, due to inability to pay obligations, especially pensions. - Jefferson County, AlabamaJefferson County, AlabamaJefferson County is the most populous county in the U.S. state of Alabama, with its county seat being located in Birmingham.As of the 2010 U.S. Census, the population of Jefferson County was 658,466...
, November 2011, over $4 billion in debt (largest Chapter 9 bankruptcy to date), from sewer revenue bondRevenue bondA revenue bond is a special type of municipal bond distinguished by its guarantee of repayment solely from revenues generated by a specified revenue-generating entity associated with the purpose of the bonds, rather than from a tax...
s tainted by a interest rate swapInterest rate swapAn interest rate swap is a popular and highly liquid financial derivative instrument in which two parties agree to exchange interest rate cash flows, based on a specified notional amount from a fixed rate to a floating rate or from one floating rate to another...
briberyBriberyBribery, a form of corruption, is an act implying money or gift giving that alters the behavior of the recipient. Bribery constitutes a crime and is defined by Black's Law Dictionary as the offering, giving, receiving, or soliciting of any item of value to influence the actions of an official or...
scandal with JPMorgan and county commissioner Larry LangfordLarry LangfordLarry Paul Langford is the former mayor of the city of Birmingham, Alabama. He previously served on the Jefferson County, Alabama, Commission, including four years as the first African American commission president. He also served as mayor of Fairfield, Alabama, and served one term on the...
, and bond insuranceBond insuranceBond insurance is a type of insurance whereby an insurance company guarantees scheduled payments of interest and principal on a bond or other security in the event of a payment default by the issuer of the bond or security...
credit ratingCredit ratingA credit rating evaluates the credit worthiness of an issuer of specific types of debt, specifically, debt issued by a business enterprise such as a corporation or a government. It is an evaluation made by a credit rating agency of the debt issuers likelihood of default. Credit ratings are...
collapse in the late-2000s subprime mortgage crisisSubprime mortgage crisisThe U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages....
, followed by the occupation tax being declared unlawful in Alabama. (see Jefferson County, Alabama: Sewer construction and bond swap controversy)
Municipalities placed under receivership
The town of Central Falls, Rhode IslandRhode Island
The state of Rhode Island and Providence Plantations, more commonly referred to as Rhode Island , is a state in the New England region of the United States. It is the smallest U.S. state by area...
petitioned to be put into receivership in 2010, as Rhode Island does not permit Chapter 9 filings. The state appointed receiver or overseer assumed all financial responsibilities from the mayor. Rhode Island's receivership law was rewritten to allow the receiver the ability to declare Chapter 9 Federal Bankruptcy and Central Falls has done exactly that.
Hospital district Chapter 9 bankruptcies
A Hospital District is a governmental entity with taxing authority that owns and operates medical facilities.- The Valley Health Systems district, California
- West Contra Costa Healthcare District, California
Other entities that declared Chapter 9 bankruptcy
- San Jose Unified School DistrictSan Jose Unified School DistrictSan Jose Unified School District is a K-12 school district in Santa Clara County, California. It serves a large portion of the city of San Jose, California with a student population of approximately 32,000.-List of schools:...
, 1983. - Washington Public Power Supply System (WPPSS), 1983, due to halt in construction of planned nuclear reactors.
- The West Jefferson Amusement and Public Park Authority owner of VisionLand Park now known as Alabama Adventure Theme ParkAlabama Adventure Theme ParkAlabama Adventure is an Alabama amusement park, located off Interstate 20/59 in Bessemer, just west of Birmingham and east of Tuscaloosa. It is owned by Adrenaline Family Entertainment which also operates the Clementon Amusement Park in New Jersey....
, 2002, due to business that could not support its debt. - Pierce County Housing Authority, 2008, in Pierce County, WashingtonPierce County, Washingtonright|thumb|[[Tacoma, Washington|Tacoma]] - Seat of Pierce CountyPierce County is the second most populous county in the U.S. state of Washington. Formed out of Thurston County on December 22, 1852, by the legislature of Oregon Territory...
, residents' lawsuits due to mold in properties. - Sarpy County Sanitation Improvement District, 2009, in Sarpy County, NebraskaSarpy County, Nebraska-Demographics:As of the census of 2000, there were 122,595 people, 43,426 households, and 33,220 families residing in the county. The population density was 510 people per square mile . There were 44,981 housing units at an average density of 187 per square mile...
, due to reduced real estate development. - New York City Off-Track Betting Corporation, December 2009, in New York CityNew York CityNew York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...
, due to mismanagement, - Connector 2000 Association, operator of the Southern Connector, 2010, due to toll collections being less than expected.
Petitions for permission that were denied
- In 2010, the city of Hamtramck, MichiganHamtramck, MichiganHamtramck is a city in Wayne County of the U.S. state of Michigan. As of the 2010 census, the city population was 22,423. Hamtramck is surrounded by the city of Detroit except for a small portion of the western border that touches the similarly surrounded city of Highland Park...
requested permission from the Governor to declare Chapter 9 Bankruptcy, but was denied. Instead of bankruptcy, the treasury advised that Hamtramck be offered a selection of loan options. - Washington Park, IllinoisWashington Park, IllinoisWashington Park is a village in St. Clair County, Illinois, United States. The population was 5,345 at the 2000 census.-History:Washington Park filed for Chapter 9 bankruptcy protection in July, 2009, citing assets of less than $50,000 and debt of more than $1 million...
January, 2011. Washington Park briefly emerged from bankruptcy and then filed a new petition for bankruptcy which was rejected by the judge, who claimed there was no state law enabling a municipality to declare bankruptcy. - Boise County, IdahoBoise County, IdahoBoise County is a rural mountain county in the U.S. state of Idaho. The population was 6,670 at the 2000 census; it was estimated at 7,571 in 2007...
, March 2011, due to judgment against the county for violating the Fair Housing Act. The claim was dismissed by the judge after concluding the municipality has “sufficient surplus moneys” to satisfy the judgment and continue operations. - Harrisburg, PennsylvaniaHarrisburg, PennsylvaniaHarrisburg is the capital of Pennsylvania. As of the 2010 census, the city had a population of 49,528, making it the ninth largest city in Pennsylvania...
, October 2011, approximately $400 million in debt, due in part to a failed trash incinerator. The presiding judge rejected the bankruptcy claim on grounds that "all of the branches of a municipality must be on the same page".
Notable defaults that did not result in Chapter 9 bankruptcy
- Cleveland, OhioCleveland, OhioCleveland is a city in the U.S. state of Ohio and is the county seat of Cuyahoga County, the most populous county in the state. The city is located in northeastern Ohio on the southern shore of Lake Erie, approximately west of the Pennsylvania border...
, 1978, dispute with city creditors over sale of a utilityCleveland Public PowerCleveland Public Power is a publicly owned electricity generation and distribution company in Ohio. It was founded in 1907 by Tom L. Johnson, then Mayor of Cleveland, Ohio. Before 1983 it was known as Municipal Light . CPP does not have sufficient capacity to compete across the entire Greater...
.
Notable Bankruptcies that were declared ineligible for Chapter 9 bankruptcy
- The Las Vegas MonorailLas Vegas MonorailThe Las Vegas Monorail is a monorail mass transit system located on the Las Vegas Strip, in Clark County, Nevada, United States. It connects the unincorporated communities of Paradise and Winchester, and does not actually enter the City of Las Vegas. It is owned and operated by the Las Vegas...
was declared a private entity, 2010.
External links
- Adjustment of Debts of a Municipality
- http://www.gasb.org/exp/ed_chapter9_bankruptcies.pdfGASBGASBGASB may refer to:* Governmental Accounting Standards Board * Gallium antimonide...
Accounting and Financial Reporting for Chapter 9 Bankruptcies] - Number of Ch. 9 filings by year data from the American Bankruptcy Institute
- http://www.orrick.com/fileupload/1736.pdfAvoiding and Using Chapter 9 in Times of Fiscal Stress, john knox and marc levinson, ORRICKOrrick, Herrington & SutcliffeOrrick, Herrington & Sutcliffe LLP is an international law firm founded in San Francisco. Orrick traces its roots back to 1863, making it the oldest continuously-operating law firm in San Francisco, and the second-oldest privately-held company in San Francisco after Levi Strauss & Co....
] - Ohio Local Government Fiscal Emergency/Fiscal Watch Law Fact Sheet
- Municipal Bankruptcy in Perspective, A Joint Publication of PAR and BGR
- Michigan Public Act 72 of 1990, Local Government Fiscal Responsibility Act, and the Appointment of Emergency Financial Managers
- all the Chapter 9, Title 11, United States Code on the Cornell University Law School
- Municipal Bankruptcy in Alabama - Kerem Deal
- AN EXAMINATION OF MUNICIPAL FINANCE REFORM REGARDING MUNICIPAL BANKRUPTCIES IN THE UNITED STATES - Kerem Deal