Under Chapter 9 of the Bankruptcy Code, a municipality can apply for restructuring of its debts. Specific authorization by state laws is essential for a municipality to file for Chapter 9 bankruptcy. Municipalities of other states should seek special authority from a state governmental official before filing a Chapter 9 petition. Further, a municipality should be declared insolvent for filing under Chapter 9. A municipality is considered insolvent if it is generally not paying its debts as they become due unless such debts are the subject of bona fide dispute, or unable to pay its debts as they become due.
Creditors List is a list of all persons who may assert a claim against the municipality. Pursuant to the Bankruptcy Code, the municipality should include each and every person that may assert a claim, even if the municipality believes that a given claim is specious.
Bankruptcy laws define a claim as “a right to payment, whether or not reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured;” or “a right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured.”
Usually, if the creditor is listed in the petition with undisputed, noncontingent, unliquidated claims, a proof of claim is believed to have filed; or such creditor need not expressly file a proof of their claim. However, any creditor whose money is listed as disputed, contingent, liquidated should file a proof of claim.
A court has only limited power over the municipality. It cannot interfere with any of the municipality’s governmental powers and duties or with any property or revenues. The court can in no way limit the debtor’s use of income-producing property. Even if the municipality has filed Chapter 9 bankruptcy petition, it can still borrow money without court approval. Since there is no estate to be administered, generally no trustee is appointed.
A proof of claim filed should conform to the official form prescribed by the Bankruptcy Code, and should be duly signed by the creditor or the creditor’s agent. Copies of the documents evidencing the claim and evidence of perfection of any security interest claimed must be attached to the proof of claim. In Chapter 9 cases, the court fixes the bar date for filing proofs of claim and notice of such deadline must be given to all creditors and parties in interest. Leave for an extension of time to file a late proof of claim can be requested by a creditor for the reasons of inadvertence, mistake, or carelessness amounting to “excusable neglect” as well as due to intervention of circumstances beyond the parties’ control.