Chapter 9 Bankruptcy is originally designed for the distressed municipalities which have obtained too great credit without the actual possibility to pay it off and not break down the economy. The special approach is created here because the state municipals have the direct influence on the citizens, who shall not appear to be responsible for the credits the local government took.
That is why the Chapter 9 offers the unique possibility to reorganize the debts. The procedure is much like the one in case of Chapter 13 for the private persons or Chapter 11 for businessman. Here the meeting with creditors also takes place, still here it’s been held in order to find out the best financial plan. The municipality shall return the taken costs partially.
Since the municipalities are usually cities, towns, districts or the whole countries, it’s not easy to create the good plan for them. Still while the discussion the interest rates are usually getting significantly dropped and/or the term of loan appears to be extended for the debtor to be able to pay the sum in smaller parts monthly.
Due to the subject being the municipal item, it’s nearly impossible to liquidate it, so there’s nothing the debtor might be forced to give off. That’s why the things here cannot be solved like they are in case of private debtors filing for the Chapter 7. This also happens because the states are usually under the local jurisdiction, so they just cannot be forced to liquidation by the other state with the other laws.
This chapter concerns the municipal debts only. The most well-known bankruptcies appeared to be the Orange Country, California (1994) and Jefferson Country, Alabama (2011). Though this chapter is really close to the civil or business ones, still there are several outstanding features of this one.
First of all the ability to rewrite the bargain agreement here is relatively high, since the town needs to get the opportunity to recover after the unsustainable pension or other questionable benefits.
Also some states do not allow the Chapter 9 bankruptcy without the full authorization.