Why Individuals Cannot File Chapter 9 of Bankruptcy Law
Facing up to bankruptcy could be difficult but let us be
pragmatic about it.When you are going to be filing bankruptcy, there are several different types from which you can choose. But you cannot definitely file for bankruptcy under Chapter 9, because
this is municipal bankruptcy. This law applies to only public or political
division of a state in US. Most
countries have similar bankruptcy laws to protect the public assets from
liquidation.
The bankruptcy law was enacted during 1934 during the great
depression. This was enacted so that municipalities could file for bankruptcy
in the same way that individuals and businesses could. The purpose of filing
for Chapter 9 bankruptcy is that it will provide a municipality that is
financial distressed with protection from the creditors, and allow it to
develop further and figure out a way to clear its debts.
In the same way that other
bankruptcies work, when a municipality has filed for Chapter 9, their assets
will be reorganized in order to pay back as much of their debt as possible.
With this type, this means that either the old debts will be extended in the
interest of the debt maturities and that the creditors will still get their
money, just at a later time. Sometimes, it also means that the interest or
principal on the debts can be reduced. Other times, it means that the debt can
be refinanced by getting a new loan that will cover all of the old ones.
The thing that is different about Chapter 9 is that there
will be nothing in the bankruptcy filings that say that the assets of the
municipality have to be sold or liquidated in order to pay off the debts. This
makes it very easy for a municipality to file for bankruptcy and figure out a
way to get out of debt without having the legal issues regarding differences
between states and their internal affairs that should not be regulated by the
government.
A person or a business cannot file for Chapter 9. Only a
municipality can, which is defined under the code as "a political subdivision
or public agents or part of a state." This includes cities, counties, school
districts, towns, and even public improvement districts. Also included under
this definition would be bodies that produce revenue, such as bridge
authorities, or authorities that deal with highways or gas.
When filing for
Chapter 9 it is very important that you fit this definition because the
specifics of Chapter 9 are meant only to provide this surface to a
municipality, and not to just an individual or a business who is going through
bankruptcy. It is designed to keep the country running as well as possible.
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