A lesser recognized chapter of bankruptcy that is particularly designed for “municipalities,” which includes counties, taxing districts, cities, towns, municipal utilities, and school districts.
Under chapter 9 bankruptcy municipalities are allowed to restructure their debt by extending the timeline on debt refinancing, repaying debts, or the reduction of principal or interest on existing debts. The assets of a municipality are not liquidated under a Chapter 9 bankruptcy.
A discharge is received by a municipal debtor in a chapter 9 case is after:
(1) confirmation of the plan;
(2) deposit by the debtor of any consideration to be distributed under the plan with the disbursing agent appointed by the court; and
(3) a determination by the court that securities deposited with the disbursing agent will constitute valid legal obligations of the debtor and that any provision made to pay or secure payment of such obligations is valid.
Thus, the discharge is conditioned not only upon confirmation, but also upon deposit of the consideration to be distributed under the plan and a court determination of the validity of securities to be issued.
In chapter 9 cases. There are two exceptions to the discharge
(1) any debt excepted from discharge by the plan or order confirming the plan.
(2) a debt owed to an entity that, before confirmation of the plan, had neither notice nor actual
knowledge of the case.
At any time within 180 days after entry of the confirmation order, the court may, after notice and a hearing, revoke the order of confirmation if the order was procured by fraud.