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Yet Another City Moves Towards Bankruptcy :: Charlotte Bankruptcy Lawyer

Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “What is a small business bankruptcy ?”

Though many people realize that individuals and sometimes even companies that get behind on debt payments and find themselves struggling to pay bills can file for bankruptcy protection, most may not understand that cities can also find themselves in similar situations. As evidence of this, a small town in California has announced that it is poised to run out of money early next year and anticipates filing for bankruptcy.


Rundown Old House Charlotte Bankruptcy Lawyer North Carolina Debt AttorneyThe city in question, Desert Hot Springs, California, says that a combination of high salaries and exploding pension costs have crippled the small local government. A newly installed city finance director said that she noticed a $3 million budget shortfall last week. Though $3 million may not seem like a lot in the grand scheme of things, it is compared to the small $13.5 million annual budget of the city. Officials say that 70 percent of the city’s budget is eaten up with police department expenses, especially police pension costs which have ballooned as the workforce ages.


The city has only 26,000 residents and says that it has run out of other sources of funding. At the current rate, city officials say they believe they will run out of money by March of 2014 and will then be forced to seek bankruptcy protection from creditors.


Should Desert Hot Springs move towards bankruptcy it will make the city the third in California to do so, following San Bernardino and Stockton. These bankruptcies have occurred as Detroit stumbled its way into bankruptcy, earning the distinction as the largest American city to ever seek bankruptcy protection. 

According to Forbes Magazine, the Detroit bankruptcy was for a total of $18 billion in debt, dwarfing all other recent municipal bankruptcies. The second largest municipal bankruptcy was filed back in 2011 by Jefferson County, Alabama (home to Birmingham). The county says that an expensive sewer system proved to be more than the budget could handle and leaders decided to file a $4 billion bankruptcy. Stockton’s 2012 bankruptcy represents the fourth largest municipal filing ever, at $1 billion, while San Bernardino’s $500 million bankruptcy is big enough to rank as the fifth largest.


Unlike personal or corporate bankruptcies, municipal bankruptcies take place under Chapter 9 of federal Bankruptcy Code. Much like Chapter 11 and 13 bankruptcies, Chapter 9 allows municipal debtors to get relief from paying creditors while they attempt to restructure. However, one important difference is that cities are sovereign entities which means that courts do not have nearly the same power to force them to make certain changes. This means that unlike other provisions of bankruptcy code, creditors have much less power to dictate the terms of the bankruptcy.


If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC today at (704) 370-2828. As professionals who are experienced in the bankruptcy arena, our attorneys will provide you with the best advice for your particular situation.



“Another California City Contemplates Bankruptcy,” by Eliana Dockterman, published at Time.com.

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