04 November 2014

What's Municipal Bankruptcy For? And, Who Decides?

I've recently written three articles on Chapter 9 municipal bankruptcy. (Municipal Bankruptcy: When Doing Less Is Doing Best (download here); Who Bears The Cost: The Necessity for Taxpayer Participation in Chapter 9 (download here), and Who Bears the Burden: The Place for Municipal Residents in Chapter 9 (download here).) 

Professor Juliet Moringiello has written at least as many and you can read her latest salvo, Chapter 9 Plan Confirmation Standards and the Role of State Choices by going here to download it. I discussed the interplay between state law and bankruptcy code priorities in my initial Municipal Bankruptcy article and argued that the Bankruptcy Code provided no explicit solution in cases where they differed. Thus, I concluded, the court would be left with no option but to dismiss the case when the creditor constituencies could not come to consensus.

Professor Moringiello explores the roots of this conflict between the States, which create and control municipalities, and the federal government, which exclusively has the bankruptcy power, in great depth and comes to largely the same (albeit more nuanced) conclusion:
Even in Chapter 9, which, for constitutional reasons, explicitly honors many state choices, a state law is preempted if it conflicts with federal bankruptcy law. The state has a choice: prohibit its municipalities from filing for bankruptcy, or permit them to file and thus subject them to the Bankruptcy Code “as is,” unmodified by state preferences. Because of the skeletal nature of Chapter 9, however, there are questions as to what “as is” means.
In short, we have another helpful piece in the puzzle of Chapter 9 bankruptcy. 

1 comment:

  1. Nice post.......Bankruptcy is a legal status of a person or other entity that cannot repay the debts it owes to creditors. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor.NJ Lawyer