There is a growing trend of personal bankruptcy declarations that has continued since before the 2008 credit crunch. For most major US cities the trend is still increasing, albeit at a slower rate. Although personal Chapter 13 and 7 filings are up, what about businesses? Even though the number of business declaring bankruptcy is lower, the impact is perhaps greater because each business may have tens, to hundreds, to even thousands of employees. The trickle down effect of even a slight increase in Chapter 11 could be severely damaging to a local economy.
But this brief article isn't about Chapter 13, 7, or even 11, we're looking at Chapter 9--filings for municipalities.
Take for example the city of San Diego where discussions of bankruptcy have swirled for a couple of years. The city has been in financial distress for years now. The issues range from pension issues to burgeoning debt associated with benefits.
The causes? Increasing costs and funding problems, worth $3.5 billion just in pensions and health care. However, they also skip out in opportunities to collect stimulus money.
It doesn't help that San Diego has total deficits of $7 billion, according to the city's report on bankruptcy considerations (pdf).
The solution? Bankruptcy. The time will permit the city to cut costs and restructure. San Diego will explore measures like outsourcing its library system and trash collection services to reduce costs. Generally for the average citizen outsourcing city jobs won't have a huge impact. The library may in fact close, the lawn won't be cut as often. The time for a city declaring bankruptcy is mostly spent restructuring finances.
As with every unfolding opportunity some are not convinced that SD will even face a bankruptcy problem from their financial burdens, whereas others think that's the only option.
Notes: Some sources from CC Legal Group: San Diego Attorney.
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