Across the country, from Vallejo, Calif. to Detroit, Mich., some cities that cannot repay their debts have taken the extreme step of declaring municipal bankruptcy.
Cities file for bankruptcy under Chapter 9 of the Bankruptcy Code. Yet before a city can declare Chapter 9 bankruptcy, the city must establish it is eligible to do so according to state law.
Chapter 9 bankruptcy is relatively rare. We’ve listed the cities and towns that have filed for Chapter 9 bankruptcy since 2008 on the map below.
According to bankruptcy attorney Karol Denniston, when a city owes money to its employees, pensioners, and creditors, these debts constitute a contract — similar to a business taking out a loan. If the debts cannot be…