California City Declares Chapter 9 Bankruptcy

The San Bernardino City Council recently filed for Chapter 9 bankruptcy after learning it only had $150,000 left in its bank account, according to city officials.  Although there are continuing reports of the economy creeping back to life some cities are still struggling to pay its debts. 

Many in San Bernardino are worried that the town may have to shut down if it can’t find the money to pay its employees. However, Chapter 9 bankruptcy protection is a special form of federal law for insolvent municipalities that will allow the city to renegotiate labor contracts and avert lawsuits by its creditors. Hopefully, these protections will enable the city to restructure its budget and forestall creditors enough to get back to financial stability. 

Yet, San Bernardino is looking at a $46 million deficit despite significant cuts in benefits and employees over the last few years. After years of a recession and growing labor costs the city has finally hit a wall, according to city officials. This only adds to the concerns of several other California cities that are also cutting jobs and facing the same problems. Like Florida, California, was one of the hardest hit states in the foreclosure crisis. As a result, several cities across California have gone bankrupt. Because of the mass foreclosure, the cities collect less in taxes which force them to make cuts to pension and health plans.  Add this to increasing labor costs and you have a recipe for insolvency.

Sometimes when facing a financial crisis the best thing to do is reorganize. Although Chapter 9 is reserved strictly for municipalities, Chapter 13 allows individuals to stall payments and lawsuits and rearrange their budgets so that their creditors can get paid. If you need help with a bankruptcy or reorganization, contact Orlando bankruptcy attorney Eric Lanigan or Roddy Lanigan of Lanigan and Lanigan, P.L.