Harrisburg May File Municipal Bankruptcy for Accumulated Debts
Anyone who has ever needed to file bankruptcy to overcome debt is familiar with the intensive commitment required in order for the process to be successful. Imagine what a city must handle when filing for municipality bankruptcy. According to The Wall Street Journal, Harrisburg, Pennsylvania may file for municipal bankruptcy (Chapter 9) to help the city with a $288 million debt. In addition, Harrisburg’s annual budget has been surpassed by the $68 million in payments on the debt this year.
Municipal bankruptcy is available as an option in order to help protect a troubling city from creditors as that city works on developing and negotiating a plan for solutions to debt. The Administrative Office of the U.S. Courts makes it known that there are several ways for a municipality to reorganize its debts. Some ways include lowering the amount of principal or interest, giving the time when financial payments or repayments are due an extension, or refinancing the debt by getting a new loan.
Filing for Chapter 9 seems to have received support from Harrisburg officials who believe it will provide the most immediate means of reaching a solution. However, the process requires Pennsylvania’s community and economic department approval, and may be pricey and take up quite a lot of time. A few benefits to municipal bankruptcy are that assets of the municipality will not be liquidated, nor will assets be required to be sold. The article mentions that Chapter 9 will allow an automatic stay of all litigation and provides municipalities with an opportunity to refuse union contracts.
The outcome of bankruptcy filing cannot be predicted, but it is certain that staying in debt will only make matters worse for any U.S. city. If Harrisburg does not end up filing for municipality bankruptcy, it may seek financial distress status under state law. Hopefully, discussions among creditors and city council members will result in a prospective plan to help Harrisburg recover and gain momentum once more.
July 14th, 2010 at 7:30 AM
Is this rally going to help Harrisburg? This will definitely pay an extra load of expenses on people living there. But staying in debts is much worse than filing for chapter 9 bankruptcy.