Municipal Bankruptcy: 21st Century Challenges

The economic crisis of the early 21st century has affected not only consumers and businesses in the United States, but also local governments. Cities as large as Detroit were experiencing profound challenges ranging from political unrest to bankruptcy filings. This article aims at providing a general understanding of the core laws and practices surrounding municipal bankruptcy by addressing the eligibility requirements, the positive and negative aspects of bankruptcy, and the alternative solutions for financially distressed municipalities. More specifically, a review of statistical data and associated research concerning municipal bankruptcy will be discussed in order to better understand the underlying causes. In addition, factors linked with an increase in local government bankruptcy filings will be examined to discover possible reasons for this new pattern. Finally, it will be answered the question if municipal bankruptcy is the only solution for a local government experiencing deep financial distress. As generally it is best avoided for a number of reasons that will be discussed, it will be provided some tools for emerging from a heavy debt profile that may deliver to better solutions for a city, than declaring bankruptcy.