Municipal bankruptcy, also known as Chapter 9 bankruptcy is being considered by at least five U.S. cities. Municipalities are finding that their coffers have become thin after being battered by the foreclosure crisis, credit crisis, unemployment crisis and a tsunami of corporate bankruptcy filings and cutbacks. Chapter 9 bankruptcy offers municipalities the opportunity and power to restructure and reorganize their debt and assets will relieving them of many financial obligations that may be draining them financially. But what does a Chapter 9 bankruptcy filing mean for the ordinary citizen?
- One of the first things that gets impacted by a Chapter 9 bankruptcy is the city employee. Individuals who work for a city in Chapter 9 bankruptcy could find employment contracts nullified or if they remain employed they may see steep cuts in salary and benefits.
- City funded retirement accounts, pension funds and health care plans are often eviscerated in Chapter 9 bankruptcy. These types of public benefits plans are great during boom times but often suck the financial life out of a city once a recession hits. Chapter 9 bankruptcy gives a municipality the power to make major overhauls to these types of benefits plans.
- Residents living in a city in Chapter 9 bankruptcy may find that parts of its public system may be privatized. For example, some of the cities considering bankruptcy are also considering selling off public parks and part of its library system as part of the bankruptcy reorganization.
- Residents may also begin paying for services that were once “free.” Chapter 9 bankruptcy municipalities may charge a fee for trash pickup, library services or other public amenities such as parks and pools.