Nossaman at the Forefront of Municipal Bankruptcy Issues


This week, the City of San Bernardino became the third municipality to explore protection from its creditors under Chapter 9 of the U.S. Bankruptcy Code, which is the Chapter 11 equivalent for municipalities.  Although San Bernardino has not officially filed yet, it looks as though it will follow in the footsteps of Stockton and Mammoth Lakes, both of whom filed earlier this year.

Faced with a $46 million deficit, the San Bernardino City Council authorized the municipality to file for Chapter 9.

Bogged down by lack of property tax revenue, deficit spending, and other rising obligations, experts anticipate more municipalities will follow suit.  Some speculate that as more cities file for Chapter 9 protection, the stigma associated with bankruptcy is lessening. More municipalities are expected to file bankruptcy this year.

Nossaman has been at the forefront of Chapter 9 bankruptcies beginning with the Orange County case in the 1990's and continuing the representation of creditors and other parties in the Vallejo, Stockton and Mammoth Lakes cases.  Nossaman is well versed in the legal requisites to a Chapter 9 bankruptcy filing, including the AB 506 mediation process under the current California law establishing preconditions to Chapter 9 bankruptcy filings, as well as eligibility hearing requirements and the unique issues relating to bankruptcy jurisdiction and power over state municipalities.

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