Within the last five to six years, it seems like many municipalities or cities have filed for bankruptcy because they were unable to eliminate the debts they had at the time. Therefore, they filed a Chapter 9 bankruptcy, which is a reorganization plan for cities and municipalities. However, this must comply with the state’s law in order to be valid, as reported by PBS in a February 8, 2014 article.

Some of the cities that have filed include, but are not limited to Harrisburg, Jefferson County, Stockton, San Bernardino, and Detroit. Cities consider bankruptcy as an option when they are unable to compensate their “employees, pensioners, and creditors,” which they have an obligation to pay. One of the issues that arises when a city considers bankruptcy is whether its state will agree to the bankruptcy since the bankruptcy is governed by state law, but the overall process must comply with federal law. If the state agrees, then the city or municipality is allowed to propose a plan to reorganize its liabilities. If the state does not agree and the petition is filed and approved, then this is a violation.

However, not all states have this prohibition, but they might have other criteria that must be satisfied before the bankruptcy petition is filed. For instance, one criteria is having the debt analyzed by someone in a high government position, like the governor of the state. Moreover, there are some states which specify which municipalities can file, for instance “municipalities that become bankrupt for reasons beyond their control.”

If you are considering filing for bankruptcy, whether you have medical debt or credit card debt, you should speak with a qualified attorney. Jayson Lutzky offers free in person confidential consultations in his Bronx office. The office is conveniently located one block from the 4 train. Mr. Lutzky has over 30 years of experience practicing law and has helped thousands of clients regain their financial freedom. Call 718-514-6619 to set up an appointment or visit www.MyNewYorkCityLawyer.com for more information.