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Illinois' Next High-Profile Bankruptcy Case: Chicago Public Schools?

Posted on in Bankruptcy

Illinois' Next High-Profile Bankruptcy Case: Chicago Public Schools?

It looks like Chicago Public Schools are headed toward bankruptcy if Illinois General Assembly member Ron Sandack (R-Downers Grove) has his way. Whenever an individual, a company, or in this case a school system considers filing for bankruptcy, it is best served by working with an experienced bankruptcy attorney.

Chicago School System's Debt Dilemma

The school system, the third-largest in the country, is currently facing a $1.1 billion budget deficit. The primary cause of this deficit is the $634 million payment it owes to its employees' pension fund. Rather than raising taxes to meet this looming expense, Sandack feels that allowing the district to declare Chapter 9 bankruptcy is a more affordable solution for the city's taxpayers to fix the school system's debt problem. Chapter 9 bankruptcy can not be declared without special legislation to allow it. If the General Assembly does not pass Sandack's bill, the school system can not declare Chapter 9 bankruptcy. The Chicago Teachers Union is pushing back against the legislation.

How Would Chapter 9 Bankruptcy Help the Schools?

Filing for Chapter 9 bankruptcy would allow the school system to address and repair its debt issues by reorganizing its finances under the supervision of its creditors and the city. Much like Chapter 13 bankruptcy, Chapter 9 bankruptcy allows an indebted party to develop a repayment plan to cover its debts rather than simply having them forgiven. Sometimes, though, partial forgiveness is part of a Chapter 9 plan. Other ways a party might complete a Chapter 9 bankruptcy plan could include applying for a new loan, reducing the amount of interest it owes, or extending its debts' maturities. In the Chicago Public Schools' case, filing for Chapter 9 would mean federal oversight as it makes cuts to its budget, possibly relieving it partially or entirely from its obligation to pay staff members' pensions.

Teachers in the Chicago school system are understandably worried about what this might mean for their pensions. Earlier this year, teachers and other union school staff organized a strike to protest the bill. For them, filing bankruptcy would mean invalidating their contracts and losing the pensions they were promised as public school employees.
Illinois Bankruptcy Attorneys

The Chicago School System potentially filing for Chapter 9 bankruptcy is a decision that will affect millions of taxpayers, parents, students, and individuals who work within the school system. To learn more about how this decision might affect you or your options if you are considering filing for bankruptcy to get a better handle on your personal or business debt, contact our team of experienced Illinois bankruptcy attorneys at the Law Offices of Newland & Newland, LLP. We are a team of experienced bankruptcy, foreclosure, and loan modification attorneys who understand the nuances of Chapters 7 & 13 bankruptcy and can explain them to you in language you can understand. Do not wait to begin working with our firm – contact us today to get started.

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