Unlike other bankruptcy cases, a Chapter 9 case is dealt in a different way by bankruptcy courts. A Chapter 9 bankruptcy is exclusively designed for municipalities that include cities and towns, villages, counties, taxing districts, municipal utilities, and school districts. A municipality is a political subdivision or public agency or instrumentality of a State; and therefore its assets and debts should not offend constitutional guaranties of state sovereignty.
A chapter 9 bankruptcy judge is not selected by random from a qualified list. S/he is selected from the place of location of the bankruptcy court by the chief judge of the Court of Appeals of that place. This is for removing any political clout present in the case. Chapter 9 bankruptcy is considered as one of the most complex and rarest forms of bankruptcy because it is highly complex, larger in size and the parties involved, and the law treats these cases in a very different manner.
The following criteria should be met by the municipality for receiving approval of bankruptcy
1. The municipality must comply with the applicable provisions of the Bankruptcy Code;
2. The plan must be proposed in good faith;
3. In case of utility districts, any applicable regulatory authorities must have approved rate changes;
4. All classes of creditors whose legal or equitable rights are altered must vote to accept the plan;
5. At least one impaired class must vote to accept the Plan. However, if an impaired class does not vote to accept a plan, the bankruptcy court can still approve the plan over that class’ dissenting vote, provided that the Plan is “fair and equitable.”