Stockton, California Prepares for Bankruptcy Filing This Week

The city of Stockton is preparing to file for bankruptcy this week should mediation talks with creditors fail, making it the largest city to file deb protection.

Stockton owes close to $700 million to various creditors. City officials are meeting with creditors on Monday. Should those talks fail, the city must meet on Tuesday to decide if they should adopt a budget for operating under bankruptcy, which is generally a move that precedes a Chapter 9 filing.

Stockton, like many municipalities, has faced budget shortfalls because of the high cost of city retiree benefits, lost property tax revenue due to the troubled housing market and a costly downtown revitalization project.

If the city must file for Chapter 9, a bankruptcy filing reserved for municipalities they will have to adopt austerity measures which include reducing or eliminating benefits for retired municipal employees, end city bond payments and reorganize labor contracts.

Under Chapter 9, creditors cannot request that the city liquidate assets.

Cities, like businesses and individuals, have been adversely affected by the economic downturn. Many struggle to pay their debts, but when they are unable to, a bankruptcy lawyer can offer them debt relief.

Chapter 13 or Chapter 7 bankruptcy gives an indebted person or business protection from their creditor’s collection activities which can entail harassing phone calls and property liens. After consulting with a bankruptcy attorney, the debtor can then decide which filing is appropriate for their needs.

Since declaring bankruptcy is a big decision to make, it is important to have a bankruptcy attorney guide the indebted business or individual through the process.