Law Restricting Chapter 9 Bankruptcy Filings Will Not Proceed ~ Los Angeles Lawyer Articles

Thursday, September 6, 2012

Law Restricting Chapter 9 Bankruptcy Filings Will Not Proceed


A number of recent California cities have filed for bankruptcy, and this has raised concerns in some circles that this could be the start of a trend of more cities in the Golden State making plans for Chapter 9 filings.  A bill that was designed to change a state law that calls for mediations between creditors and municipalities before going ahead with plans for bankruptcy will likely not proceed.
The bill was introduced to restrict the number of Chapter 9 bankruptcy filings by municipalities.  Over the past few months, a number of California cities have filed for bankruptcy, and these have not only rocked the California bankruptcy lawyer community, but have also garnered nationwide attention. 
In 2008, the city of Vallejo filed for bankruptcy.  Soon after that, California passed its Chapter 9 law, which calls for mediations and negotiations between municipalities and creditors.
Soon after the law was passed, a string of other cities including Stockton, San Bernardino and Mammoth Lakes also filed bankruptcy papers.  Stockton's bankruptcy was the most disturbing, because this was the largest bankruptcy filing by any U.S. city.
A new proposal would make changes to the state law to give more powers to mediators during negotiations between creditors and disparities.  This would help place several restrictions for municipalities that are determined to file for Chapter 9 bankruptcy.  The bill has been strongly supported by public employee unions, who have found that many of the other recent municipality bankruptcies have resulted in the rights of public union employees being relegated to the back seat.  When a large city files for bankruptcy, it is public pension and health benefits that are at serious risk of being limited.
However, an aide to the Senate President recently confirmed that this bill is likely not to proceed.

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