The Changing Landscape of Municipal Bankruptcy


The landscape of municipal bankruptcy has been shaped during the past 6 years by the Vallejo, Stockton, Jefferson County, San Bernardino and Detroit chapter 9 cases, among others. Each of these cases has its own "personality," and each has confronted novel legal questions, many of which are still in the process of being resolved by the courts.

One thing that rings true for all of them, however, is that as in chapter 11 cases, negotiated settlements are preferable to litigation. Or, as Judge Klein said in the Stockton case, "Chapter 9 is negotiation on steroids." And bondholders are focused on the application of decisions of these cases to the restructuring of the debts issued by public entities in Puerto Rico, whether under the debt recovery act recently enacted by Puerto Rico, or chapter 9 (if amended to permit Commonwealth municipalities to file chapter 9 petitions).

Topics covered:

  • The landscape of "good faith" in chapter 9 for both for debtors and creditors
  • The impact of security features for bonds: special revenues, restricted funds and statutory liens
  • When is a GO a secured obligation?
  • The impact of chapter 9 on post-employment benefits (pensions and health care)
  • Myths and realities about the scope of the bankruptcy court’s power in chapter 9