Jefferson County, Alabama filed the largest Chapter 9 bankruptcy in U.S. history on November 9, 2011. The estimated debt included in the filing is $4.23 billion. (Before the filing, the previous biggest municipal bankruptcy was $1.7 billion by Orange County, CA in 1994).
The Chapter 9 bankruptcy filing provides bankruptcy protection for Jefferson County, but will not wipe out Jefferson County debts. Instead, the Chapter 9 is a type of restructuring in which the County develops a repayment plan. Creditors are allowed to form a committee and make suggestions, but they don’t ultimately have a say in the final plan– as long as the County’s plan meets certain requirements, it is binding on creditors even if they dissent.
The Chapter 9 bankruptcy filing should not interfere with the county’s delivery of essential services to its citizens or payment to its employees and vendors. Jefferson County’s day-to-day activities are not subject to court approval, and it can borrow money without having to ask for court authority. (This is different from a Chapter 13 individual bankruptcy in which the debtor cannot incur new debt without the approval of the court).
Jefferson County has filed a list of creditors it owes. More than 5,000 creditors were listed in the petition, the largest of which, JP Morgan Chase & Co., owns about $1 billion of the county’s $3.14 billion debt for sewer construction.
U.S. Bankruptcy Judge Thomas Bennett will preside over the Chapter 9 case. He will rule on the plan, deciding whether it is in the best interests of creditors and is feasible.