On November 9, 2011, Jefferson County, Alabama filed the largest-ever municipal bankruptcy case under chapter 9 of the U.S. Bankruptcy Code (the Bankruptcy Code), citing corruption, failures of the Alabama State Legislature, and natural disasters as the cause for its $3.14 billion debt. Historically, Chapter 9 of the Bankruptcy Code, intended solely for municipalities, has rarely been used by municipalities as a method for restructuring.
This year has already seen four local governments file chapter 9 cases, including a controversial filing by Harrisburg, Pennsylvania, which is being contested by the State of Pennsylvania, and which has since passed legislation to seize control of the city and put it under receivership. Unlike the Harrisburg filing, Jefferson County’s bankruptcy filing has been an anticipated for some time.
At a hearing before the U.S. Bankruptcy Court for the Northern District of Alabama this afternoon, Jefferson County won court approval to hold a hearing in approximately 30 days on whether it is in fact eligible to be a chapter 9 debtor. Creditors had apparently sought 60 days to prepare for the hearing.