Restructuring Municipal Bankruptcy

What sorts of legal relief should be available to a municipality in financial distress? Chapter 9 of the Bankruptcy Code has served as an option of last resort for many municipalities over the years. But as this Article illustrates, Chapter 9 arguably falls short of an effective solution and at times seems to contravene the foundational principles underlying bankruptcy law. By examining recent Chapter 9 filings, this Article presents a comprehensive analysis of how and why Chapter 9 has failed to address the problems that characterize municipal insolvencies.

It argues that Chapter 9, in both practice and principle, has proved unsatisfactory in combating the very issues it was designed to resolve. After highlighting Chapter 9’s shortcomings, this Article suggests critical areas of reform that will begin to reconcile Chapter 9 with the broader goals of bankruptcy law.