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What is Chapter 9?

Chapter 9 is a form of bankruptcy filing that is reserved for municipalities which have defaulted on their debt obligations.

This could include a school district or other entities which have a municipal affiliation and the ability to generate revenue from local taxes. They cannot be made to liquidate anything. In fact, it forces the lender to accept a refinancing of the debt obligation.

Because municipalities fall under state jurisdiction, the federal government, which governs bankruptcy court, does not have the ability to force liquidation of a municipal entity’s assets. Instead, this provision of bankruptcy law governs refinancing arrangements to facilitate the repayment of debts owed.

This may require that lenders accept a smaller principal amount or reduced loan interest, or that they stretch the repayment schedule out, or a combination of these. The most common situation where this would be a problem is if a municipal entity defaulted on a municipal bond obligation.

Keywords: liquidation value, bankruptcy law, muni bonds, municipalities, bankruptcy filings, Chapter 9,