- Chapter 9 of the federal bankruptcy code can only be used by a municipality. Eligible municipalities include cities, counties and even school districts that are under debt obligations.
- The municipality must first petition for Chapter 9 bankruptcy protection. The petition includes a list of all the municipality's creditors. After filing for bankruptcy, all collections actions against the municipality must stop.
- Certain parties, such as residents or employees of the municipality, may object to the petition or its approval. The court must hold a hearing on objections, during which a judge can dismiss the petition if he rules in favor of the objector.
- In a method similar to Chapter 13 bankruptcies for individuals, the municipality must submit a reorganized debt-payment plan. Under Chapter 9 law, an approved repayment plan is binding even if some creditors disagree with the terms.
- After the approval of a repayment plan, and thus the bankruptcy filing, the municipality is cleared of the debts included in the repayment plan. This discharge can, however, be revoked if the court determines that fraud was involved in any way.
