Exploring the Chapter 9 Options for Oregon's Municipalities

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Attorney Oren Haker co-authored an article with Lewis & Clark associate law professor Samir Parikh in the Willamette Law Review titled “Exploring the Chapter 9 Option for Oregon’s Municipalities.” The article discusses how Chapter 9 of the federal bankruptcy code could help financially distressed Oregon city and county governments, which in the wake of the Great Recession of 2008 have seen declining tax revenues alongside increased costs related to debt financing, health care and employee pension benefits.

The article covers: the fiscal problems facing local governments; the limited debt restructuring options available under Oregon state law; and an exploration of the history and nuances of Chapter 9. Lastly the authors outline a framework for a state process for distressed municipalities to receive authorization to file for Chapter 9 protection.

Chapter 9 of the bankruptcy code addresses municipal bankruptcy. When the city of Detroit, Mich., filed for Chapter 9 bankruptcy in 2013, it was the largest in U.S. history by debt, estimated at $18-20 billion. However, Chapter 9 bankruptcy is only available in states where it is expressly allowed by the legislature, which is not the case in Oregon. Haker and Parikh argue this is an oversight as local governments lose a valuable restructuring option as well as bargaining power with bondholders, current employees and retirees, and other creditors.

The authors conclude that Chapter 9 is “merely the last door at the end of a long hallway.” They advise that distressed municipalities should exhaust all out-of-court options to arrive at a settlement plan before resorting to a court-mandated Chapter 9 solution. They also note that the bargaining leverage provided by the last-resort option of filing for Chapter 9 bankruptcy can help a municipality avoid federal bankruptcy court altogether.

Download and read the full article here (PDF)

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