Posted by Claire Zillman
The Depression-era bankruptcy code provision known as Chapter 9, which lets local governments seek protection from creditors while restructuring debt, is a rarely used tool.
Since 1937 there have been a total of just 623 Chapter 9 filings in the United States, with 252 of them coming in the past 30 years. Compare that to the 13,500 Chapter 11 filings entered in 2010 alone.
Yet with local governments throughout the U.S. continuing to suffer the lingering effects of a sputtering economy, state lawmakers are apparently sensing a possible surge in new Chapter 9 filing--and are moving to stop it before it starts.