Issue link: https://mbozikis.ufcontent.com/i/1422521
234 X. ADJUSTMENT OF DEBT OF A MUNICIPALITY (CHAPTER 9) A. Overview and Purpose of Chapter 9 Chapter 9 of the Bankruptcy Code governs municipality bankruptcies. It is the only Chapter under which a municipality may seek bankruptcy protection and, likewise, it applies solely to municipality bankruptcies. The purpose of Chapter 9 is to afford a financially distressed public entity protection from creditors while it develops a plan for reorganizing its debts. Debt adjustment is most often accomplished in Chapter 9 by extending maturities, reducing principal or interest, or paying off some or all of the existing debt through a new loan. The power of a bankruptcy court in Chapter 9 proceedings is limited by the sovereign powers guaranteed to the states under the Tenth Amendment of the U.S. Constitution and such limitations are reflected within the bankruptcy statute. See U.S. v. Bekins, 304 U.S. 27 (1937). Notably, Chapter 9 differs from the other Chapters in that there is no provision for liquidation of the assets and distribution of the proceeds to creditors which could violate the Tenth Amendment. Chapter 9 filings have been relatively rare, perhaps because of the reluctance of governmental entities to cede any control to the bankruptcy court. Recently, Chapter 9 has been the subject of greater attention with such high-profile bankruptcy filings as that by the City of Detroit, which, at the time of filing, represented the largest municipal bankruptcy in U.S. history. See In re City of Detroit, Mich., 13-53846 (Bankr. E.D. Mich. July 18, 2013). 129 129 The interplay between Chapter 9 and the Tenth Amendment was highlighted in the City of Detroit decision in which the Court, in overruling challenges to the constitutionality of Chapter 9, as applied to that case, held that when the State consents to a Chapter 9 bankruptcy, the Tenth Amendment does not prohibit impairment of contract rights, including obligations relating to