Indiana Lawyer for Bankruptcy Keeps an Eye on Stockton, California

April 14, 2013 3:31 pm Published by

It’s not an Indiana bankruptcy issue – or is it?  

I’ve been following the news about Stockton, California, the largest  U.S.  municipality to ever file bankruptcy. I need to explain that, in all the 26 years that I’ve been a debt consolidation lawyer offering Indiana bankruptcy help, there has never been a provision in the law allowing, either in my city of Indianapolis, or in my state of Indiana, for a municipality to file Chapter 9 bankruptcy.

So why are all of us good bankruptcy attorneys in Indiana so concerned with what happens in “faraway” Stockton? And why is the Reuters news service reporting that “Stockton ruling is seen key to U.S. cities’ bankruptcy options”?

Just a couple of weeks ago, I was happy to share with my Bankruptcy in Indiana readers the fact that Vallejo, another city in California, had emerged from bankruptcy. I quoted Vallejo resident Ann Smith who said the people of Vallejo had had a very hard time, but that now they are really motivated and interested in ”turning the town around and making sure we go back to being the kind of community we all envision."

Bankruptcy, whether it’s individual bankruptcy (Chapter 7 or Chapter 13), small business bankruptcy, or even municipal bankruptcy, is supposed to do exactly that – turn things around. The other aspect of bankruptcy we stress in all five Zuckerberg bankruptcy law offices is that it’s a legal system meant to treat all parties, to the extent possible, with equal fairness.

The Stockton case is complicated, because it’s a big city (300,000 residents) with three very big debts owed to three types of creditors:

  • Providers of services contracted by the city from private companies
  • Investors who bought bonds, expecting to receive interest payments and eventually get back the money they invested
  • Retired city employees receiving pension payments

Many of the people who come to me seeking Indiana bankruptcy services and help to stop foreclosure had been trying for years to avoid or delay the inevitable. Stockton, too, had made efforts to solve their financial problems and avoid filing municipal bankruptcy. The city defaulted on certain debts and allowed foreclosure on some of its buildings. The city also cut some of its departments by 25%, including its police force. Now the city will need to prove to the bankruptcy judge that it truly is insolvent and that it should be allowed to file bankruptcy.

Remember what I said about bankruptcy law being fair to all the parties? All across the United States, there are other cities that are in debt, who are waiting to see how the bankruptcy court in California interprets “being fair to all parties”.  Will pension payments and health benefits to retirees be allowed to be cut? Will bondholders get their principal back? Will companies that provided services to the city get paid?  

Yes, bankruptcy is meant to offer a chance for a fresh financial start. But when there simply isn’t enough money to go around, something’s gotta give.  And as an Indiana bankruptcy attorney, you can bet I’m watching the situation in Stockton, California!


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This post was written by Mark Zuckerberg

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