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Wednesday, April 1, 2015

Should Illinois Municipalities be Authorized to File for Bankruptcy?

A question that has come up recently in Illinois is whether Illinois municipalities can file for bankruptcy.  We've seen larger cities in other states (like Detroit) go through the bankruptcy process, but have had any experience in Illinois.  That has less to do with the current financial condition of Illinois municipalities and more to do with the current state of the law in Illinois.

Under Chapter 9 of the federal Bankruptcy Code, municipalities have the authority to file for bankruptcy provided they meet certain criteria.  One of those requirements is that bankruptcy is authorized by state statute.  Illinois does not currently have a statute specifically authorizing municipal bankruptcies, although more than half of all states do authorize municipal bankruptcy.

With the increase in unfunded mandates by the state legislature, and the potential for Illinois municipalities to lose 50% of their income tax revenues, the Illinois Municipal League has issued a position statement in support of legislation authorizing Illinois municipalities to file for bankruptcy.   That bill is HB 298.  You can read more about the IML's position on its website here.

Post Authored by Julie Tappendorf


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