News / Law
Stockton City Council Votes to Declare Bankruptcy after Negotiations Fail
In a 6 to 1 vote, the Stockton City council voted to declare bankruptcy following a contentious five hour debate with bondholders and labor unions.
Although the city has until July 1st, when a budget is due, to file for bankruptcy, they may do so as early as Wednesday. This will make it the largest municipal bankruptcy in history.
Stockton has already stopped paying some bondholders, but also sought to bridge budget gaps by reducing or eliminating medical coverage for city retirees, a move labor unions blocked.
The city cut the Police Department by 25 percent and Fire Department over the past three years to reduce their debts. Stockton now has the second highest crime rate in California.
Stockton’s debt problems can be attributed to their high level of foreclosures, causing a serious decline in tax revenue.
Generally, a Chapter 9 bankruptcy filing is utilized by smaller cities and gives Stockton more expansive protections from creditors than a Chapter 11 filing which is most often used by corporations.
Bankruptcy wasn’t the ideal choice for city leaders, but they saw no other solutions to their debt issues. Businesses and individuals, in the wake of a long-running recession, have found that hiring a bankruptcy attorney and filing for debt protection is their only choice for returning to financial solvency.
Any entity swimming in debt should meet with a bankruptcy lawyer to see what Chapter 7, Chapter 11, or Chapter 13 bankruptcy entails, and whether a filing will help them improve their finances. A bankruptcy attorney will dedicate their skills and time to leading a person or business out of debt.
