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Illinois Suburbs Poised for Bankruptcy Under House Bill 298

Posted on in Bankruptcy
Illinois Suburbs Poised for Bankruptcy Under House Bill 298

House Bill 298 is currently making its way through the Illinois state legislature. If it passes, municipalities in Illinois will be able to file for Chapter 9 bankruptcy.

Chapter 9 bankruptcy is the type of bankruptcy that is reserved for municipalities that can not cover their debts. It is only available for struggling municipalities. For individuals struggling with personal debt, Chapter 7 and Chapter 13 bankruptcy are ways to regain control of their financial lives. For business owners, Chapter 11 and Chapter 13 bankruptcy can be viable options. Another type, Chapter 12, exists for farmers and fishermen who survive on seasonal incomes. To learn more about the types of bankruptcy that exist and those that may be available for you, work with an experienced bankruptcy attorney.

Which Municipalities May File for Chapter 9 if House Bill 298 Passes?

Five municipalities are seeking the right to file for Chapter 9 bankruptcy. They are:

  • Sauk Village
  • Maywood
  • Blue Island
  • Dolton
  • Country Club Hills

Chapter 9 bankruptcy provides financially distressed municipalities the opportunity to develop plans to repay their debts, much like Chapter 13 does for individuals and small business owners. Under a Chapter 9 plan, a municipality might apply for a new loan, extend its debt maturities, or reduce the amount of interest or principal that it owes to its creditors. There is no option for liquidation with Chapter 9 bankruptcy.

When Can a Municipality File for Chapter 9 Bankruptcy?

An indebted municipality can not simply file for bankruptcy. It must be legally authorized to do so through a state law or governmental officer or organization with permission from the state to grant this type of privilege. This is why House Bill 298 must be decided before the municipalities mentioned above can file for Chapter 9 bankruptcy. If the bill does not pass in the state legislature, the towns may not use Chapter 9 as a way to fix their debt problems.

If a municipality is granted the right to file for Chapter 9, it works with its creditors to develop a plan for managing its debt. While this plan is in place, an automatic stay is applied to the municipality to allow it time and resources to focus on handling the debt. An automatic stay is a requirement that a bankrupt party's creditors cease all collection attempts until the bankruptcy has been resolved. A federal trustee oversees the Chapter 9 process. His or her role in the process is more limited than the role that a trustee plays in a Chapter 7, Chapter 13, or Chapter 11 bankruptcy case.

Illinois Bankruptcy Attorneys

If you are considering filing for bankruptcy to get a handle on your personal debt or you want to learn more about Chapter 9 and how it could affect your hometown, contact our team of experienced Illinois bankruptcy attorneys at the Law Offices of Newland & Newland, LLP. We have an intimate knowledge of all facets of bankruptcy law and can help you understand the key concepts and how they can affect you and your debt situation, such as loan modification, Chapter 7 & 13, and bankruptcy and foreclosure.

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