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Proposed Municipality Bankruptcy Bill in Illinois

Posted on in Bankruptcy Attorney
Proposed Municipality Bankruptcy Bill in Illinois

Businesses are able to file for federal bankruptcy when they have extreme difficulty paying their expenses. However, this right to file bankruptcy has not been given to municipalities in the state of Illinois.

Current Bankruptcy Policy

Although state governments are not eligible to file for bankruptcy, local governments may do so if their state permits them to do so. The current Illinois Municipal Code prevents municipalities from recognizing its debts under Chapter 9 of the Code without authorization by state law. Municipalities include cities, villages, and incorporated towns.

Under this current bankruptcy policy, public school systems and many other government institutions in Illinois are not able to file federal bankruptcy.

What is Illinois House Bill 298?

At the end of January of 2015, Representative Ron Sandack (Republican in the 81st District) of the Illinois House of Representatives introduced House Bill 298 (HB0298) to the General Assembly. House Bill 298 would amend the Illinois Municipal Code to allow a municipality to “file a petition and exercise powers pursuant to applicable federal bankruptcy law.”

The logistics of House Bill 298 are still being developed. However, Representative Sandack intends for the Bill to protect municipalities from unnecessary filing and interaction with the state government and instead allow local governments to resolve their issues with creditors. Allowing municipalities to conduct their business without Illinois state government authorization would give local governments the opportunity to assess their financial situations before the last resort option of filing for federal bankruptcy.

The Benefits of HB0298

Representative Sandack's proposed bill would give cities, public school systems, villages, and other municipalities the option to file bankruptcy. This bill may give these institutions a better chance at reaching solvency without relying more heavily on taxpayers.

Allowing municipalities to file bankruptcy would also curb overhead costs. In bankruptcy actions, the court has the ability to analyze all sorts of information such as the municipality in question's salaries, contracts, and pensions. A bankruptcy judge has the power to enforce significant changes in the municipality's finances while also protecting its assets and handling creditors that may be involved.

If passed, House Bill 298 would protect creditors by ensuring that they would be paid first in the event of loan defaulting. These lenders would have priority to get paid over those people to whom pensions are owed or creditors to whom debts are owed. This idea also protects local governments by ensuring their ability to access money to meet their financial needs, thus protecting the borrowing power of these municipalities.

Are You Considering Filing for Bankruptcy?

If you or your business is contemplating filing for federal bankruptcy, it is important that you seek legal assistance. Here at Newland & Newland, LLP, we have a highly skilled legal team that can provide you with the expertise needed to resolve your financial situation. Contact us today to schedule a free phone consultation and discuss your legal options before you make the decision to file for bankruptcy.

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