A Brief Overview of Municipal Bankruptcy

Stephen Lisauskas
Stephen Lisauskas

Stephen Lisauskas is an experienced municipal financial leader who has worked as the executive director of the Springfield Finance Control Board and the deputy town administrator of Natick, Massachusetts. Over the course of his career, Stephen Lisauskas has become familiar with many areas of municipal finance, including municipal bankruptcy.

Chapter 9, Title 11, is a unique bankruptcy filing available only to municipalities. The filing was designed to assist financially compromised municipalities in restructuring their debt.

In most cases, Chapter 9 bankruptcy allows a municipality to either extend debt maturities (as a means of reducing the principal or accrued interest) or entirely restructure the debt with the help of a new loan. The most important distinction between Chapter 9 bankruptcy and other types is that municipalities cannot be forced to liquidate assets to satisfy creditors. Such an act would violate the Tenth Amendment to the US Constitution and would leave a municipality with little infrastructure to support itself or its citizens, essentially rendering a filing useless.

There are a number of notable Chapter 9 filings in the history of the United States. The city of Detroit recently filed for bankruptcy to the tune of $18 billion, the largest such filing in the nation’s history.

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