It seems that Chapter 9, or municipal, bankruptcies have been on the uptick in recent years. San Bernardino exited Chapter 9 Bankruptcy protection just two months ago, but there are already challenges to the city’s court-approved plans and to the ways the city is handling those plans according to a January 8, 2015 Sacramento Bee article.

The California public workers’ system, CalPERS, was a major creditor in the bankruptcy. The city offered and continues to offer pensions to its employees. CalPERS manage the financial end of these pensions. The bankruptcy did not change the city’s arrangement of payments to CalPERS whatsoever. Some creditors received restructured payments of 12 cents on the dollar in the bankruptcy agreement.

It can be argued that pensions for municipal workers are guaranteed by the state’s constitution. It can also be argued that the massive amounts San Berardino must pay the fund currently and in the future damages the city as a whole. Someone argued that, in a nearby city that also went through bankruptcy, that pensions are necessary to attract and retain government employees, so promised pension packages cannot be touched. On the other hand, Detroit’s bankruptcy offered a moderate cut to city employees’ pensions.

Ambac Assurance Corp., a bond insurer, and EEPK, a foreign bank, are owed money by San Bernardino. They have now challenged San Bernardino in court. The city owes the two companies $59 million in total. The companies have not received any repayments from the city since the bankruptcy. The suit points out that the city is paying CalPERS its debt and what it owes. The two companies do not think that the city should be making payments in this manner, as they are all creditors that should be paid together, at the same time. A lawyer representing EEPK made similar comments at the time of the bankruptcy and hinted that lawsuit might be forthcoming if the city treated its creditors differently. Now, the court may have a new role to play in the financial pathway of the city.

Jayson Lutzky is a Bronx attorney handling personal bankruptcies. He has over 31 years of legal experience in New York. His office is here to represent those facing debts they cannot pay throughout the entire bankruptcy process. Mr. Lutzky offers free, in-office consultation. Call 718-514-6619 to schedule a no-obligation appointment today. Visit www.MyNewYorkCityLawyer.com/Blog for more legal news.