Bankruptcy

UPDATE: City of Vallejo, California files for Bankruptcy

By J. Michael McBride

Vallejo, California filed for bankruptcy protection under Chapter 9 (available only to municipalities and a form of reorganization, not liquidation) last Friday in the Eastern District of California. The city has been struggling with personnel costs and low taxes from the housing market. The voluntary petition estimates between one to five thousand creditors, $500 million and $1 billion in assets, and $100 to $500 million in debt. The largest claim for $219,300,816 (which accounts for over half of the total) is for the city retirees.

As you might know, we have been following the potential bankruptcy filing for the city for several months now. The city has been negotiating with the unions for the past year concerning wage cuts to keep the city out of bankruptcy. The financial audits conducted for the city have shown that it would run out of money in its operating account by the end of June.

Vallejo is the largest city ever to file for bankruptcy protection in California; with over 120,000 residents. The most famous Chapter 9 filing was by Orange County, California filed on December 6, 1994. The county treasurer lost $1.7 billion of the investment pool on Wall Street securities. The county didn't emerge from the reorganization for 18 months.

Other California cities that have filed for bankruptcy under Chapter 9 are:

Coalinga in 2003 with a population of approximately 12,000;
Desert Hot Springs in 2001 with a population of approximately 17,000;
Dinuba in 2001 with a population of approximately 17,000; and
Calexico in 1995 with a population of approximately 19,000.

Vallejo is the birth city of several famous individuals, actor Raymond Burr and musicians Roy Rogers and E-40, just to name a few.

You can read an article discussing the filing at:
http://amlawdaily.typepad.com/amlawdaily/2008/05/vallejo-turns-t.html

Chandra

Full post as published by Texas Lawyer Blog on May 29, 2008 (boomark / email).