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BankruptcyFeaturesLitigationThe Bankruptcy Strategist

Recovering Administrative Claims in Chapter 9 Bankruptcy and Title III of PROMESA

By James B. Bailey

Municipal bankruptcies under Chapter 9 of the Bankruptcy Code, 11 U.S.C. §§ 901-946 (Chapter 9), are rare. These cases are often filed to adjust bonded indebtedness and pension obligations. Congressional authorization for Puerto Rico and its instrumentalities to file for bankruptcy under the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) was similarly out of concern for excessive bond debt and pensions.

Nonetheless, bonds and pensions are not the only liabilities that municipal or territorial debtors incur. Like corporate debtors, governmental entities incur trade debts and other liabilities. Creditors providing goods or services during a debt adjustment case may face obstacles in collecting what are typically considered “administrative claims” in a corporate reorganization.

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