Navigating Municipal Bankruptcy

B. Anthony Billings, PhD, Melvin Houston, JD, and William H. Volz, JD

Historically, bankruptcy of governmental units has been rare, but in recent years large municipal units such as Detroit, Mich., Jefferson County, Ala., San Bernardino, Calif., and Stockton, Calif., have all filed and successfully exited from Chapter 9 bankruptcy. As with private sector bankruptcies, municipal bankruptcies have important implications for creditors and constituents of financially distressed units. For instance, many Detroit union workers, retirees, suppliers, and employees faced consequences such as the cancellation of existing city contracts and reduction of benefits paid to employees.