Chapter 9 Bankruptcy is for municipality bankruptcy. It helps municipalities restructure their finances.
Municipalities are political subdivisions, public agencies, or another instrumentality of a state, in other words a town or city.
A municipality must satisfy the following requirements in order to file for Chapter 9 relief:
Chapter 9 Bankruptcy is similar to Chapter 13 Consumer Bankruptcy. When a municipality files for Chapter 9 Bankruptcy, it intends to create a repayment plan that is acceptable to the municipality and its creditors. Moreover, it also protects the municipality against creditors until an amenable repayment plan is reached.
A repayment plan is usually created through negotiation with the creditors. Negotiation may include debt reduction, slashing of interest rates, or extending loan terms. Refinancing debt can also be done during Chapter 9 bankruptcy.
Chapter 9 is primarily used by school districts, water districts, and hospital districts to reorganize their finances. There have been less than 500 municipal bankruptcy filings since 1937 when the Bankruptcy code was amended to permit municipality debt restructuring.