Chapter 9 Bankruptcy

The economic conditions prevailing in the U.S. since 2008 have forced a number of cities and municipalities across the country into dire financial situations, highlighted by Detroit’s troubles. Such difficulties are also hitting Kentucky, and more challenges are likely in the future.

At the Lexington-based law firm of Bunch & Brock, we view Chapter 9 bankruptcy as a viable means by which a financially troubled municipality can reorganize and regain its strength. Our lawyers have extensive experience in complex bankruptcy matters, including Chapter 11 cases, which share many similarities.

We realize that no municipality is eager to file bankruptcy, but it must be considered as an option.

We do not rush our clients into anything; careful study of the issues and parties must be made before reaching a decision on any issue as important as municipal bankruptcy.

To Whom Is Chapter 9 Available?

The bankruptcy code states that Chapter 9 may be filed by “municipalities,” defined as any type of “political subdivision or public agency or instrumentality of the state.” Examples of Kentucky entities that can seek Chapter 9 protection are cities, towns, taxing districts, special districts, municipal utilities, school districts and hospital districts.

Note that this definition does not include counties. A county can file Chapter 9 bankruptcy only after receiving approval from a local debt officer of the state government.

Why Might a Kentucky Municipality File for Chapter 9 Bankruptcy?

Historically, Chapter 9 was used mostly by entities that had defaulted on municipal bonds. Bond debt is still a valid reason for filing, but Chapter 9 can also be used in response to:

  • Burdensome pension obligations
  • High costs of labor
  • Drastic loss of revenue, as may occur when a city’s inhabitants leave due to lack of jobs
  • Operating expenses of a state health care system
  • A large judgment against the municipality

Handling All Issues That May Arise

Municipal bankruptcy, as you may suspect, is often a politically charged issue. As a result, some very contentious disputes may arise. The Lexington attorneys of Bunch & Brock are adept at finding solutions for the various complications that are likely to come up, including disputes as to whether the municipality is eligible to file Chapter 9, proving insolvency, and showing that good-faith efforts to negotiation have been made and will continue to be made throughout the process.

 

Contact a Kentucky Municipal Bankruptcy Attorney

Attorney-BelobraidichIf you represent a Kentucky municipality that is facing a fiscal crisis, contact Bunch & Brock to explore whether you should move in the direction of Chapter 9 bankruptcy. Call our Lexington office at 859-254-5522 or contact us online.

We are a debt relief agency. We help clients file for relief under the U.S. Bankruptcy Code.