Stockton, California faces possible Bankruptcy

The California city Stockton will hold a hearing on Tuesday to determine if it will decide to declare bankruptcy.

If Stockton decides they need the help of a bankruptcy attorney, it will be the largest municipality in history to declare Chapter 9 debt relief. Chapter 9 bankruptcy is a structure exclusively used by municipalities.

The city has already taken drastic measures to bridge the gap in budget shortfalls, cutting $18 million from fire and $13 million from police. Stockton’s is facing a $35 million deficit and 75 percent of their budget goes to the fire and police departments.

Layoffs in the fire and police departments created a backlash for city leaders.

Last year, California passed union-backed laws that would make declaring bankruptcy more difficult. The law requires that a city declare a fiscal emergency and enter into a 60-day mediation process with creditors before they can have a bankruptcy lawyer do a Chapter 9 filing.

Stockton has already filed two fiscal emergencies in the past few years, the most recent was last May.

The city has not confirmed they will in fact declare bankruptcy, but Tuesdays meeting is viewed as a step in that direction, according to an inside source reporting to the Huffington Post.

Those critical Stockton’s possible bankruptcy says that it could impede business growth and drive down property values. But for troubled businesses or cities a bankruptcy attorney may be their only way to relive overwhelming debt.