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BankruptcyCommercial LawFeaturesLitigationLJN NewslettersThe Bankruptcy Strategist

The Chapter 9 Crucible

By Ron Oliner and John R. Weiss

Chapter 9 of the Bankruptcy Code is a ghost, of sorts. Everyone knows about it and it's existed for a long time, but there isn't much substantive law there. Any bankruptcy practitioner, upon first contact with a municipal bankruptcy case, may be shocked by the lack of substantive law to be found in Chapter 9. The dearth of detail has long caused bankruptcy lawyers and courts to turn to the far more substantive provisions of Chapter 11 for practical guidance. Even more interesting, and many times frustrating, is that the interests of constituents who are not recognized to have any legal standing will nonetheless have important, and sometimes dramatic, influence over the direction of a municipal case.

Under other chapters of the Bankruptcy Code, the constituents can predictably be corralled and branded: debtor, secured creditors, unsecured creditors, equity security holders, perhaps a trustee and, of course, the Office of the United States Trustee. In a Chapter 9 case, this defined universe of identifiable interests is expanded to include the more amorphous opinions and positions of the public, the media and politicians of various shapes and sizes. Such opinions and positions are often at odds with the legal dictates of the Bankruptcy Code, but recent experience acts as a reminder that such constituents must be “classified” and “treated” during the course of a Chapter 9 case just as if they were creditors holding claims.

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