Municipal Bankruptcy

You may have read in the news in the last few months about some fairly large cities in California “declaring bankruptcy.”  San Bernadino, Stockton, Compton, and some smaller California Cities have taken this option.  Certainly cities in other states have also faced severe financial difficulties.   Is your City bankrupt? 

Not in Wisconsin it’s not.  In Wisconsin, bankruptcy is not available to municipalities.  Federal authority over bankruptcy law is authorized by Article 1, Section 8 of the U.S. Constitution.  Thus bankruptcy law is primarily a creature of Federal law regulated by Congress, (although it is inextricably linked to various state laws as well).  As a matter of Federal law, Congress also has to take into consideration the Tenth Amendment which guarantees certain powers to the sovereign states.  So, although Chapter 9 of the Bankruptcy Code technically creates a mechanism for a county, city, village, school district, municipal utility, et al, to file for bankruptcy, Chapter 9 is only available in those states which specifically and explicitly authorize it.  Wisconsin has not done so.

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