Bankruptcy Indiana

Municipal bankruptcy – it’s a topic I’ve been writing about in these Bankruptcy in Indiana articles, despite the fact that, in all the years I’ve been a bankruptcy attorney in Indiana, the new bankruptcy laws of Indiana have made no provision for a city or a town or county to file bankruptcy.

Is municipal bankruptcy allowed anywhere else? Well, yes, as a matter of fact.  During the Great Depression, more than 2000 municipalities had to default on loans, and a new section of the Bankruptcy Code was added, Chapter 9, just for municipalities. The first one to actually file Chapter 9 was Bridgeport, Connecticut, in 1991; the largest was Orange County in 1994.  

Then, two years ago, I featured the bankruptcy of Vallejo, California in an article.  In March of this year, drawing a parallel with the way in which bankruptcy Chapter 7 works  for individuals filing personal bankruptcy in Indiana, I wrote about Boise County’s municipal bankruptcy.

One of the differences, by the way, between individual bankruptcy in Indiana using bankruptcy Chapter 7 in Indiana and these cases of municipal bankruptcy is that, when a city or town files bankruptcy, it may or may not sell assets to pay debts. The point of the municipal bankruptcy is that it allows time for the municipality to continue to provide services to the extent possible while trying to sort out the debts they have and work with a bankruptcy judge to find ways to settle these debts.

As a reminder, my colleagues the Anderson, Bloomington, Indianapolis, and Columbus bankruptcy lawyers and I do not handle any of these cases, although we have handled tens of thousands of cases involving small business bankruptcy in Indiana and individual bankruptcy in Indiana. Still, since municipalities are in the news, it allows me the opportunity to use these cases as teaching tools for Bankruptcy in Indiana readers.

In just the past couple of weeks, I found three news stories pertaining to impending bankruptcies by cities, towns, or counties.

• Jefferson County (which includes Montgomery, Alabama) has a $3.2 billion sewer debt it cannot repay, and the governor of Alabama is discussing with his aides the pros and cons of filing municipal bankruptcy.
  
• Central Falls (a tiny town in Rhoda Island) had its credit rating cut by Moody’s Investor Services and is in danger of defaulting on its debts.
  
• This situation is similar to those I see in individual bankruptcy in Indiana where an individual’s credit rating is reduced, credit limits lowered, and interest rates raised.
  
• Harrisburg, Pennsylvania is taking steps to prepare for bankruptcy.  Possible measures include changing workers’ contracts and selling off some municipal assets.
  
  I don’t know what the future will hold in terms of Indiana changing its law to allow municipal bankruptcy.  In the meanwhile, I’ll keep providing everything from student loan debt help, to payday loan debt help, to help to stop foreclosure, one client at a time.