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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. Most famously, Chapter 9 was used by Orange County, California in 1994 to adjust its debts.



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 mandamus, 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.[1][2] The 1934 Amendment was declared unconstitutional in Ashton v. Cameron County Water District,[3] 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).[4] Chapter IX was largely unchanged until it was amended in 1976 in response to New York City's financial crisis.[5] The changes made in 1976 were adopted nearly identically in the modern 1978 Bankruptcy Code as Chapter 9.

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).

Since 1937, there have been fewer than 600 municipal bankruptcies.[6]

Features of Chapter 9

While in many ways similar to other forms of bankruptcy reorganization (Chapters 11, 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 Amendment.

Collective bargaining

Municipalities' ability to re-write collective bargaining agreements are much easier than in a corporate Chapter 11 bankruptcy[7][8]and can trump state labor protections[9] allowing cities to renegotiate unsustainable pension or other benefits packages negotiated in flush times.[10]

"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."[11]

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.[12]

New Jersey, Connecticut, and Kentucky simply give a state appointed official or body the power to approve a filing.[13]

Notable Chapter 9 bankruptcies

Note: Larger bankruptcies are in bold

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[25]
  • West Contra Costa Healthcare District, California [26]

Other entities that declared Chapter 9 bankruptcy

Chapter 9 bankruptcies that were declared but withdrawn

Notable defaults that did not result in Chapter 9 bankruptcy


  1. ^ Pub. L. No. 251, 73d Cong., 2d Sess., 48 Stat. 798 (1934).
  2. ^ Public Law Research Institute: Municipal Bankruptcy: State Authorization Under the federal Bankruptcy Code
  3. ^ 298 U.S. 513, 56 S. Ct. 892, 80 L. Ed. 1309 (1936).
  4. ^ An Act to Amend an Act Entitled An Act to Establish a Uniform System of Bankruptcy Throughout the United States,, Pub. L. No. 302, 75th Cong., 1st Sess., 50 Stat. 653 (1937).
  5. ^ An Act to Amend Chapter IX of the Bankruptcy Act to Provide by Voluntary Reorganization Procedures for the Adjustment of the Debts of Municipalities, Pub. L. No. 94-260, 94th Cong., 2d Sess. (1976).
  6. ^ MuniNetGuide: Vallejo Bankruptcy Filing Garners Attention in Municipal Finance Circles
  7. ^ In re City of Vallejo, 08-26813-A-9 (E. Dist. Calif.).
  8. ^ Cf. 11 U.S.C. § 1113
  9. ^
  10. ^
  11. ^ P.G. explores bankruptcy option
  12. ^ Bankruptcy Bloodbath May Hit Muni Owners: Joe Mysak (Update1)
  13. ^ Municipal Bankruptcy: State Authorization Under the Federal Bankruptcy Code, PLRI
  15. ^ Analysis of Factors Associated with the Municipal Bankruptcy of Pichard, Alabama
  16. ^ The City of Desert Hot Springs filed Chapter 9 bankruptcy papers in late December, making it the first California city in at least 25 years to seek bankruptcy protection
  17. ^ California City files for bankruptcy protection
  18. ^ Millport making a comeback
  19. ^ Oklahoma: Speed Trap Town Goes Bankrupt
  20. ^ Bankruptcy filed, tiny town hopes to rise again
  21. ^ Vallejo's path to bankruptcy - Vallejo Times Herald
  22. ^ [1]
  23. ^ Washington Park seeks bankruptcy protection
  24. ^ Prichard files for bankruptcy protection again
  25. ^ Hospitals file for Chapter 9 bankruptcy : North County Times - Californian
  26. ^ Doctors Medical Center files for Chapter 9 bankruptcy protection - San Francisco Business Times:
  27. ^ VisionLand debt prompts Chapter 9 filing
  28. ^ Pierce County's low-cost housing filing for bankruptcy
  29. ^ Sarpy County SID Files For Bankruptcy
  30. ^ [2]
  31. ^ Former Bridgeport CT mayors speak out
  32. ^ Three Decades After Cleveland Defaulted on Its Debts, Cities Face Recession Budget Woes
  33. ^ Troubled Alabama county in forbearance agreement

See also

External links

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