As cities, townships and municipalities struggle to address the sobering reality of a mountain of debt and decreased revenues, one tool at their disposal is Chapter 9 municipal bankruptcy. For many at the state and local level, filing for Chapter 9 bankruptcy is still viewed as the unthinkable, nuclear option. For others, Chapter 9 is viewed as a viable tool to restore financial stability to a community.
Whether Chapter 9 filings will become a reality in Michigan remains to be seen. Governor Rick Snyder has recently announced that he does not anticipate that any municipal bankruptcy filings will take place. But until cities and towns achieve longterm solutions to resolve their cash-flow issues and debt obligations, one can never say never. At a minimum, negotiations between local governments and creditors like trade unions will likely take place under the threat of a potential Chapter 9 filing. This article provides an overview of the fundamental principles of Chapter 9 municipal bankruptcy proceedings.