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Chapter 9 Eligibility

Chapter 9 Eligibility

Only a “municipality” can file for relief under Chapter 9. The term “municipality” is defined in the Bankruptcy Code to mean a political subdivision or public agency or instrumentality of a state. The definition is broad enough to include cities, counties, townships, school districts and public improvement districts. It also includes revenue-producing bodies that provide services that are paid for by users rather than by general taxes, such as bridge authorities, highway authorities and gas authorities.

There are three additional eligibility requirements for Chapter 9:

1. the entity must be specifically authorized to be a debtor under such chapter by state law or by a governmental officer or organization empowered by state law to authorize such entity to be a debtor under such chapter;


2. the municipality must be insolvent as defined in the Bankruptcy Code; and


3. the municipality must desire to effect a plan to adjust such debts and either has obtained the agreement of creditors holding at least a majority in amount of the claims of each class that the debtor intends to impair under a plan in a case under Chapter 9, has negotiated in good faith with creditors and has failed to obtain the agreement of creditors holding at least a majority in amount of the claims of each class that the debtor intends to impair under a plan, is unable to negotiate with creditors because such negotiation is impracticable or reasonably believes that a creditor may attempt to obtain a preference.

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