New legislation could allow bankruptcy protection for municipalities
Legislation filed this week by State Representative Ron Sandack (R-Downers Grove) would make Illinois the 25th state to allow municipalities to seek bankruptcy protections under the U.S. Bankruptcy Code’s Chapter 9.
Chapter 9 currently includes a provision requiring a municipality to gain state authorization when filing for bankruptcy protection and Illinois statutes do not allow for such authorization for municipal governments.
“House Bill 298 would allow desolate and debt-ridden municipalities in Illinois to seek bankruptcy protections through the federal bankruptcy law,” Sandack said. “As more and more municipalities are looking for relief and ways to deal with rising pension liabilities and other costs, this is a tool that can help them stabilize and reorganize financial affairs in ways that benefit taxpayers.”
Under the proposed legislation, Sandack said, bankruptcy through Chapter 9 would operate similarly to personal or business bankruptcy.
“Similar to the types of bankruptcy we see in the courts today, a municipality would have to file a plan according to a court-ordered schedule that divides creditors into classes and proposes treatment for each class,” Sandack said. “Creditors would get to vote on the plan and the court would approve the plan that has been accepted and is in the best interest of the creditors.
Several high-profile municipal bankruptcy filings have occurred in the United States, including Detroit and the California municipalities of Stockton, Vallejo and San Bernardino. Approximately 660 American municipalities since 1937 have filed for Chapter 9 protection.
“I hear regularly from municipal leaders who worry about their ability to pay their bills and meet other debt requirements,” Sandack said. “This bill would provide one more tool that municipalities could have at their disposal to address their financial futures in a reasonable and taxpayer-friendly manner.”