Municipal bankruptcy

Municipal bankruptcy occurs when a local government, like a city or county, cannot meet its financial obligations, such as paying debts or providing services. This often happens due to a decline in revenue, high debt levels, or economic downturns. The process allows the municipality to reorganize its finances under court supervision, typically aiming to reduce debt and negotiate with creditors. It helps the government regain fiscal health while ensuring essential services continue. Unlike personal bankruptcy, municipal bankruptcy is governed by specific laws, primarily Chapter 9 of the U.S. Bankruptcy Code.