Cities and counties filing for bankruptcy protection

The economic downturn has affected millions of Americans and American businesses. However, now bankruptcy has come to the realm of American cities , counties and local service districts. Government entities can file under a somewhat obscure provision of the bankruptcy code called Chapter 9. Chapter 9 filings, once almost unheard of, are occurring all over the nation.

According to Forbes.com, in the last 3 years 33 cities, counties, or other government entities filed for bankruptcy protection. The bankruptcy of California cities Stockton, San Bernadino and Mammoth Lakes have all filed for bankruptcy protection. The city of Stockton filed after it’s city leaders “discovered” that it only had $150,000.00 left in the city’s bank accounts, which couldn’t even cover payroll for the city of 300,000.

In Texas, no cities or counties have filed bankruptcy, but two other government agencies entities have filed. In March 2010 the Grimes County Municipal Utility District #1 filed for bankruptcy. What impact this might have on the delivery or quality of the utility services provided to residents of the county is unknown. A hospital district in the small panhandle town of Quanah, Texas recently filed for chapter 9 bankruptcy protection. The Hardeman County Hospital District bankruptcy filing has caused concern for the 4,139 residents of the rural Texas county, as they have no other significant healthcare options in their community.

As the economy appears to continue to flounder it remains to be seen whether other local government will seek protection from creditors under the bankruptcy laws.