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Bankruptcy is The Only Hope for Some Beleaguered Municipalities

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Many of you already know that in tough financial times, a bankruptcy filing can provide a financial solution for corporations and individuals. But a new type of victim in the ongoing economic crisis is emerging to seek the safe havens and shelters that only bankruptcy can provide: municipalities.

The New York Times is reporting that one Michigan town (Hamtramkc, MI) is running out of money, as well as places to cut their budget, now that the town is turning to slashing funds to board up abandoned houses, clean lots, and now even plow streets in an area where winter snow is as inevitable as death and taxes. But praying against bad weather isn’t the only way Hamtramkc is trying to survive; with only enough money to make it through March 1, 2011, now the midwestern municipality is moving to more drastic measures: bankruptcy.

“The political leaders of this old working-class city almost surrounded by Detroit are pleading with the state to let them declare bankruptcy, a desperate move the state is not even willing to admit as an option under the current circumstances.”

That’s right: Hamtramkc appears on track to be hog-tied by state legislators reluctant to allow the town to file for bankruptcy relief fearing the affect of “opening the floodgates” for more and more Michigan towns to seek the same. And while state officials wrangle over the request, Hamtramkc administrators believe bankruptcy is the only recourse for a town already facing shorter workweeks, closed parks, and the elimination of senior centers—in the best of scenarios.

“Bankruptcy, increasingly common among corporations and individuals, remains rare for municipalities. Local leaders who want to win elections find it unappealing and often have other choices for solving financial woes. Besides, states have a say in whether a municipality may pursue bankruptcy at all, and they have every reason to avoid such an outcome, not least of all for fear of a creating a ripple effect that could cripple the municipal bond market and drive up the cost of borrowing.  Yet with anemic property tax revenues and forecasts of more dire financial times ahead, some experts and elected leaders fear that more localities may have to at least consider bankruptcy.”

Other localities are, in fact, taking to the bankruptcy train. The Times finds that 15 towns from Rhode Island to Alabama suffering from unanticipated financial circumstances have pursued the bankruptcy solution in the past couple of years. “But if revenue forecasts continue as predicted, 2011 might bring a rise in cities faced with such a fate.”

This recent surge would add to the 600 cities, counties, towns and special taxation districts that have filed for Chapter 9 bankruptcy since 1937, with fewer than 250 in the last three decades.  And while the road to debt dissolution for these types of entities can be long and uncertain (“about half the states have statutes authorizing such filings, but some of them set limits or require elaborate approval processes. Other states have no specific provision allowing cities to pursue bankruptcy, and at least one, Georgia, bans such moves.”), a nation’s worth of towns are proving that in the current economic malaise, there’s no harm in trying to take your financial future into your own hands.

If you are an individual or business seeking the broad protections of bankruptcy, the path to dealing with debt and creditors is much easier. Nonetheless, a qualified bankruptcy attorney is important during the bankruptcy process to help you navigate any uncertain waters and work in your best interests throughout the duration of the case. The bankruptcy experts at the Law Offices of John T. Orcutt offer a totally FREE debt consultation. Just call toll free to 1-888-234-4181, or make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.

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