Chicago Bankruptcy Question: What is a Chapter 9 bankruptcy?

Chicago Bankruptcy Question of the Day: What is a Chapter 9 bankruptcy? Chapter 9 bankruptcy is properly titled an "Adjustments of Debts of a Municipality" and is commonly referred to a s a "municipal reorganization".    Similar to a Chapter 11 reorganization for businesses, a Chapter 9 bankruptcy allows for a municipality, such as a city or town, or an independant governmental entity, such as a port authority, to reorganize their debts under the protection of the federal courts.

Like other bankruptcy chapters, a Chapter 9 bankruptcy is commenced by the governmental entity filing a petition and plan of reorganization with the federal courts.  The case is appointed to a bankruptcy judge by the chief judge of the court of appeals for the circuit in which the case is filed, as opposed to being assigned by the clerk of the court as most cases are.  The plan proposes a repayment of the municipalities debts, broken down by class of creditor, over a set period of time. 

Similar to a Chapter 11 bankruptcy, and very different from a Chapter 13 bankruptcy, a Chapter 9 debtor receives a discharge of their debts upon confirmation of the plan of reorganization.  The discharge, however, does not eliminate the obligations of the municipality to execute the confirmed plan.  Rather, the court maintains jurisdiction to ensure that the plan is being complied with.

In todays economic environment, there are several municipalities either filing for Chapter 9 bankruptcy or at least strongly considering it.  So far, there have not been any major Chapter 9 filings in the Chicago area, but there are several municipalities in serious trouble.  If you are an officer with decision making authority and are considering filing for Chapter 9 bankruptcy, you will need the guidance of experienced and dedicated Chicago bankruptcy lawyers.  The attorneys at Ledford & Wu have the skill, experience and knowledge to represent you throughout this process.

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