What is Chapter 9 Bankruptcy?

Chapter 9 of the US Bankruptcy Code is applicable to US municipalities, including towns, counties, cities, tax districts, municipal utilities, and school districts. This chapter allows a type of reorganization that allows distressed municipalities to pay back their debt while under bankruptcy protection.

How Does Chapter 9 Bankruptcy Work?

The provision of Chapter 9 is quite different from other chapters of the bankruptcy code. This chapter prohibits the liquidation of assets belonging to municipalities. Municipalities are under the jurisdiction of the United States, hence, it is impossible to liquidate their assets in order to pay back the creditors. 

Only municipalities are eligible to file for a Chapter 9 bankruptcy, the municipality must, however, meet the four requirements below;

• The municipality must be insolvent.
• The municipality must be authorized to file for Chapter 9 under the law of the state.
• The municipality must be willing to reorganize its debts.
• It must provide evidence of negotiation of good faith or an agreement with the creditors. If it is impossible to negotiate or obtain an agreement with creditors, it should also be stated.

Related Topics

• Bankruptcy Law (Intro)
• What is Bankruptcy?
• Insolvency - Definition
• What are the types of business bankruptcy?
• Chapter 9 Bankruptcy 
• Chapter 12 Bankruptcy
• Chapter 15 Bankruptcy 
• Who are the participants in the bankruptcy process?
• Key concepts behind the bankruptcy process?
• Absolute Priority Rule
• Pari Passu
• What rules govern the bankruptcy process?
• Bankruptcy Abuse Prevention and Consumer Protection Act
• American Bankruptcy Institute Definition
• What the authority of the bankruptcy court?
• What is the authority of the trustee (debtor in possession) in bankruptcy?
• Debtor in Possession
• What assets of the debtor are included in the bankruptcy estate?
• Bulk Sales Law
• What is the automatic stay in bankruptcy?
• What is a claim by creditors of the bankruptcy estate?
• What is voluntary and involuntary bankruptcy?
• What is the Chapter 7 bankruptcy process?
• What is the Chapter 11 bankruptcy process?
• How to File Bankruptcy for a Business
• Accept or reject contracts?
• Avoiding powers?
• Stay of Proceeding?
• Use of Business Assets?
• Post-Petition Financing?
• Bankruptcy Financing - Definition
• What is the appointment of a Trustee or Examiner in business bankruptcies?
• What is a Plan of Reorganization?
• Reorganization - Definition
• Subordinated Debt
• Preferred Debt
• What is Cramdown of a reorganization plan? 
• To what extent does the bankruptcy process relieve a debtor's debts?