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A.J.
A.J., Attorney
Category: Bankruptcy Law
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Experience:  Experienced consumer bankruptcy attorney.
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what happends to judgments against municipality (for injury,

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what happends to judgments against municipality (for injury, etc), when municipality under supervison of Control Board or declares BK.
Over 34 years, I have assisted my clients with debt problems having filed more than 32000 Chapter 7 and Chapter 13 Bankruptcy petitions.
Regadless of whether the debtor is a municipality or your best friend, when a bankruptcy is filed it must be determined whether the debtor has assets. Likewise, the court will send to you a proof of claim. Upon receipt, you will provide as much information about the debt owing to you. Further, once the court receives all of the claims, the court will determine what is available to pay to you. And, if the total of the claims exceeds the amount of the assets, you will get a proportionate share. Note, also it is not uncommon for it to take up to a year after the BK is filed for you to receive a proof of claim. So please be patient. Thanks.
Customer: replied 3 years ago.


With municipality assets do not matter -- as Municipality cannot sell them. There are special provisions on what happens with debts under chapter 9 -- I would recommend that you opt out if you are not familiar with chapter 9 and/or powers of Emergency Control Board.

Hello, and thank you for contacting Just Answer. My name isXXXXX am a bankruptcy law professional, and I look forward to answering your question.

Chapter 9 bankruptcy for municipalities is rarely used, but when used, unlike in a chapter 11 reorganization (or a chapter 7 or chapter 13 seeking discharge), a creditor in a chapter 9 municipality reorganization generally does not need to file a proof of claim so long as they have been listed as a creditor in the petition (i11 USC 924 and 925). This is slightly different than other chapters of the bankruptcy code, and is in part due to the significantly more limited role that a creditor can play in a chapter 9 bankruptcy. Now, if the municipality does not list the holder of a judgment as a creditor, that is when a proof of claim would need to be filed. In either case, what happens to the judgment depends in part on whether or not the municipalities chapter 9 plan to adjust it's debt structure. Unlike a chapter 7 or 13 (but similar to a chapter 11), a creditor committee is generally formed to safeguard to the extent possible the rights of creditors and to be involved in the formation of the plan. Creditors committee's are either chosen by the creditors themselves in consultation with each other, or by the US Trustee's Office. Once the plan is drafted (hopefully with the inclusion of payments of judgments against the municipality), the court will either approve of the plan or not. Once the plan is approved, there is little that the creditor can do, so long as the plan terms are met by the municipality.

So, in short, what happens to a judgment is the same as what happens to every other creditor of a municipality, it is considered during the formation of the chapter 9 plan, with input from the creditor committee, and the plan determines which debts must be paid to what extent. The debtor committee will fight to include as many debts as possible, but it is possible for a judgment creditors debt to be left off, just like it is theoretically possible for any debt to be left out.
Customer: replied 3 years ago.

so if there is a civil judgement against the municipality for serious auto injury then the debtor of this individual claim would probably have a little chance to get paid -- as other heavy hitters on the committee would more likely to push their debts through. However, what I thought though -- that chapter 9 is mainly a re-organization chapter -- where the municipality is just given a breathing room to delal with its debts - but all of the municipality debts would normaly be paid -- but at the later date. What can you tell me about "Control Boards" which are imposed by the state to deal with municipality fiscal difficulties -- is it correct that the presence of the Control Board does not mean that the debts would be discharged or even delayed in paymenet (as municipality can continue borrowing)

Well, most if not all debts ARE addressed in a chapter 9, although perhaps not to the extent originally owed. A judgment claim should not be left out of the plan, as you are correct the point (unlike with an individual's bankruptcy) is not to get out of debts entirely, but as you say to give the municipality an opportunity to reorganize. However, yes, often the big creditors have the most influence in the creditor's committee.

As for control boards, they should not be able to completely overturn a judgment issued by the court. Control boards generally have the authority to re-negotiate contracts, and restructure municipal debt payments, but cannot completely wipe a debt out where it has been imposed by a court with proper jurisdiction.
Customer: replied 3 years ago.

If you know, what happends in reality when there is a Control Board and legitamate judgment by the court against the municipality. Would the control board representaive would try to get together with you and your attorney to negotiate a settelment on % of the judgement to be paid? How can a Control Board have a power to refuse to pay a 100% of the judgement issued by the Court when there is no bankruptcy?

The control board really should not be able to just overturn or ignore a judgment issued by a court of proper jurisdiction, but that does not mean that they won't try to negotiate a settlement of the judgment. While the control board may not be able to overturn a judgment, they do control the municipal purse strings and thus can make it difficult to collect on a judgment, and go out of their way to delay collection, in an attempt to give them leverage to settle. Whether or not a control board would do so is hard to predict, different people appointed approach these issues differently, and it will depend on the makeup of the board itself (or the approach of the control board's representative). It certainly would not hurt to have your attorney, if you are working with one (and I would strongly suggest that you do if you are not already) contact the control board about collection. There are ways to collect from a municipality that your attorney can assist you with, but there are also ways in which the control board could make it more difficult.

I hope this helps, and let me know if you have any additional questions or require clarification. Otherwise, please remember to RATE my answer positively so that I can receive credit for my work.
A.J., Attorney
Category: Bankruptcy Law
Satisfied Customers: 4300
Experience: Experienced consumer bankruptcy attorney.
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