Here is a brief discussion of the remaining two chapters in the Bankruptcy Basics Pamphlet. On Friday my coverage of the material in the pamphlet will be completed.

Chapter 9 is referred to as the Municipality Bankruptcy. The purpose of Chapter 9 is to protect a municipality that is having financial difficulty from its creditors while it develops and negotiates a plan for adjusting its debts. The term “municipality” is defined in the Bankruptcy Code as a “political subdivision or public agency or instrumentality of a State.” 11 U.S.C. § 101(40). The definition includes cities, counties, townships, school districts, and public improvement districts. It also includes revenue-producing bodies that provide services which are paid for by users of the services rather than by general taxes-for example bridge authorities, highway authorities, and gas authorities.

Reorganization of the debts of a municipality is typically accomplished either by extending the maturity of the debt, reducing the amount of principal or interest, or refinancing the debt by obtaining a new loan. Chapter 9 is significantly different from other Chapters in that there is no provision in the law for liquidation of the assets of the municipality with intent to distribute the proceeds to creditors.

Severe limitations are placed upon the power of the bankruptcy court in Chapter 9 bankruptcy cases which are required by the Tenth Amendment and the Supreme Court’s decisions in cases upholding municipal bankruptcy legislation.  Due to these severe limitations, the bankruptcy court generally is not as active in managing a municipal bankruptcy case as it is in corporate reorganizations under Chapter 11. The functions of the bankruptcy court in Chapter 9 cases are generally limited to approving the petition (if the debtor is eligible), confirming a plan of debt adjustment, and ensuring implementation of the plan. As a practical matter, however, the municipality may consent to have the court oversee many of the traditional areas of court jurisdiction in bankruptcy.

And finally there is Chapter 15 which is related to the Ancillary and Other Cross-Border Cases. Chapter 15 is a new Chapter added to the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The purpose of Chapter 15, and the Model Law on which it is based, is to provide effective mechanisms for dealing with insolvency cases involving debtors, assets, claimants and other parties in interest involving more than one country.

This general purpose is realized through five objectives specified in the statute:

1. to promote cooperation between the United States courts and parties in interest and the courts and other competent authorities of foreign countries involved in cross-border insolvency cases;

2. to establish greater legal certainty for trade and investment;

3. to provide for the fair and efficient administration of cross-border insolvencies that protects the interests of all creditors and other interested entities, including the debtor;

4. to afford protection and maximization of the value of the debtor’s assets; and

5. to facilitate the rescue of financially troubled businesses, thereby protecting investment and  preserving employment.

For more information about Chapter 15 you may refer to the Bankruptcy Basics Pamphlet or to Title 11 U.S.C. § 1501.

If you have any questions and live in Denver, Aurora, Arvada, Boulder, Brighton, Broomfield, Commerce City, Englewood, Golden, Highlands Ranch, Lakewood, Lafayette, Littleton, Northglenn, Westminster, Wheat Ridge, Colorado please feel free to contact me. Kevin D. Heupel, Colorado Bankruptcy lawyer, 303-955-7570, COBankruptcyHelpEmail, free-consultation form.