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Community Mental Health Centers: Are Chapter 9 Bankruptcies to Follow?

On Behalf of | Jul 22, 2020 | Bankruptcy, Community, Debt, Firm News, Municipalities

By: Laura Day DelCotto

The Seven Counties “saga” continued this week with the issuance of another ruling from the Sixth Circuit Court of Appeals. This chapter 11 bankruptcy case, filed in the spring of 2013, has suffered a monumental financial defeat this week. In this year of COVID and The Great Reset, community-based mental health agencies are under crisis-level needs and demands. Now, they are under crisis-level financial issues as well. The latest ruling makes clear that they are unable to escape their Kentucky Employees Retirement System (KERS) obligations. KERS says that is north of $30 million for a period from April 2013 to February 2015. As noted by the federal appellate court, “Kentucky has an interest in avoiding a result that leaves approximately 33,000 Kentucky citizens without safety-net mental health services.” The Opinion is well worth the read.

The dissenting opinion of Justice McKeague is persuasive, and the entire chapter 11 case is called into question again. Following the opinion of the Kentucky Supreme Court in 2019, 580 S.W.3d 530 (2019), Justice McKeague correctly points out that it should now be clear that Kentucky’s Community Mental Health Centers (“CMHC”) are each an “instrumentality” of the Commonwealth of Kentucky.  His analysis is thorough, and his dissenting opinion is a very important primer on one aspect of chapter 9 eligibility.

KY Pension Woes

Kentucky’s long-running pension under-funding is a massive bubble. At some point, the bubble must burst. Every elected official in every state and local government, agency, and special purpose entity needs to understand what it may or may not be able to accomplish in bankruptcy. They also have to face what issues arise as to whether it must or can file a chapter 11 vs. a chapter 9 case. This education is just beginning. Chapter 9 cases are very different and primarily rare instances. Let’s hope these parties work out the finances, which impact not only our citizens needing community services but each and every taxpayer and other participants in KERS. This is a problem for all of the Commonwealth to solve.

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DelCotto Law Group is Kentucky’s asset protection law firm known for its commitment to the lifetime success of its clients. With offices located in Lexington, Louisville and Danville, DLG serves Kentuckians with complicated financial matters, especially in the areas of bankruptcy and complex litigation. For more information please call (859) 231-5800, email [email protected] or reach us on our contact page.