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Chapter 9 Filings: Are We About to See an Uptick?

by | Sep 28, 2022 | Bankruptcy, Bankruptcy, Debt

By: Laura Day DelCotto

The Philadelphia Inquirer recently reported that the Pennsylvania city of Chester, PA is considering filing bankruptcy “as a way to steer the city toward solid financial footing” in light of an almost $50 million deficit anticipated for 2023.

Under Pennsylvania statutes, cities may have receivers appointed to manage their financial affairs, and Chester is one such city, having been operating under some level of state oversight since 1995, and the governor declared a fiscal emergency in 2020. The Receiver has the power to file a chapter 9 bankruptcy, subject to receiving authorization from the state oversight economic agency, the Pennsylvania Secretary of Community and Economic Development. The Receiver has received the requisite approval from the state to file as needed.

In Kentucky, while cities may file without any approval from the state, counties must also have state approval, from the Kentucky Department of Local Government. To our knowledge, no county in Kentucky has ever filed chapter 9, although other cities and special purpose government entities have commenced chapter 9 in the past. What role the state government will have is going to be forging new ground.

Chester has run a deficit for many years, despite a state loan and other assistance. As the receiver’s office says, “At the end of the day what has to happen is recurring revenues have got to be able to meet recurring costs…”  Some of the problems include increasing debt load and pension obligations.

While chapter 9 filings have been rare over the last years, they were rampant in the 1930s, and could be again. Chapter 9, while understandably never desired by local government, is a major form of assistance to bring all parties to the table to make decisions when limited revenues are insufficient to meet all obligations. Further, just talking about this option generally brings everyone in to work it out without an official filing ever being made.

DelCotto Law Group has been debtor and bank/bond note counsel in several chapter 9 rehabilitation proceedings. These cases are quite different from the more common chapter 11 reorganization cases.  We stand ready to assist in what we anticipate to be an uptick in the analysis  and use of chapter 9 bankruptcy as a possible option.

About DelCotto Law Group

DelCotto Law Group is Kentucky’s business preservation law firm known for its commitment to the lifetime success of its clients. 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.