San Bernardino has become the third California city in the last month to file for bankruptcy after the city council decided it could not pay the $46 million in debt it owes to creditors.
The City Council voted to approve the bankruptcy after, was the Los Angeles Times said, the “financial situation had become so dire that it could not cover payroll through the summer.” According to the Times, “The city’s fiscal crisis has been years in the making, compounded by the nation’s crushing recession and exacerbated by escalating pension costs, lucrative labor agreements.” The Times also reported that San Bernardino, with a population of almost 209,000 residents, had already “negotiated $10 million in concessions from employees and slashed the workforce 20 percent over the last four years.”
With the vote, the San Bernardino City Council approved a plan to have the city attorney file for Chapter 9 bankruptcy. The bankruptcy will allow the city to restructure its debt and come up with a payment plan. During a Chapter 9 bankruptcy, creditors cannot demand liquidation to repay debts, so this also helps in the short term. Through a successful filing, the city will also be able to re-write its collective barging agreements with employees and repackage pension plans.
Last week, we told you about how Stockton, Calif. became the largest U.S. city to ever file for bankruptcy. The situation is the same in San Bernardino—the bankruptcies show that even cities struggle with paying creditors. It also shows how bankruptcy can happen at any time, including to municipalities with multi-million dollar budgets. Much like a Chapter 9 bankruptcy, a Chapter 13 bankruptcy allows people to keep control of their possessions while working on a repayment plan and restructuring debt.
If your financial situation is a problem, contact our contact our Washington DC and Maryland bankruptcy attorney now for a free consultation.
Law Firm of Kevin D. Judd– Maryland and Washington DC bankruptcy attorney