Bankruptcy Rules, Politics Make Chapter 9 Rare Event for Cities

A nearly 90-year-old chapter of the US Bankruptcy Code created to aid cities and other municipalities in restructuring their debt remains rarely used and difficult to access due to stringent eligibility requirements.

About 700 Chapter 9 cases have been filed since the Municipal Bankruptcy Act of 1937 was enacted, compared to the thousands filed by corporate Chapter 11 debtors annually, according to Nuveen LLC, an investment solutions company that deals with municipal bonds.

The insolvency standard municipalities must meet to qualify for Chapter 9 is part of why so few have taken advantage of the tool, bankruptcy professionals and academics ...