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.