How States Address Municipal Bankruptcies

Chapter 9, Title 11 of the U.S. Bankruptcy Code provides for bankruptcy for municipalities as a way to restructure their debt. Since 1937, 633 municipal entities have filed for Chapter 9 bankruptcy protection. While states themselves cannot file for bankruptcy, they do play a role in the outcome for these financially distressed municipalities. However, the interaction between state governments and municipalities filing for bankruptcy differs widely among states. While states such as New York, Pennsylvania and Michigan have taken on a larger role in aiding and guiding failing cities, other states such as California and Alabama have traditionally distanced themselves from municipalities filing for Chapter 9.