Township Pursues Chapter 9 Bankruptcy

By: Amanda Sundquist

Westfall Township is believed to be the first Pennsylvania municipality to file for Chapter 9 bankruptcy protection. The Township sought Chapter 9 protection to force negotiations on a $20 million federal judgment entered in favor of a developer. Chapter 9 was used to reduce the award to $6 million, which will be paid in $75,000 quarterly payments over 20 years. The Township will also construct certain sewage facilities needed by the developer.

The Municipalities Financial Recovery Act, more commonly known as Act 47, is Pennsylvania’s program which permits municipalities to apply for a designation of financially distressed under certain circumstances. Under Act 47, a municipality which is found to be distressed works with a plan coordinator to develop a financial recovery plan and may be eligible for certain benefits.

Municipalities can forego Act 47 and instead file for Chapter 9 bankruptcy for municipal debt adjustment in very narrow circumstances. These circumstances include: (1) after recommendation of the Act 47 plan coordinator; (2) where there is imminent jeopardy of an action by a creditor, claimant, or supplier of goods or services which is likely to substantially interrupt or restrict the continued ability of the municipality to provide health or safety services to its citizens; (3) where one or more creditors of the municipality have rejected the proposed or adopted financial recovery plan and efforts to negotiate resolution of their claims have be unsuccessful for a ten-day period; (4) where a conditions substantially affecting the municipality’s financial distress is potentially solvable only by utilizing a remedy exclusively available to the municipality through the Federal Municipal Debt Readjustment Act; or (5) if a majority of the current or immediately preceding governing body of a municipality determined to be financially distressed has failed to adopt the financial recovery plan or to carry out the recommendations of the coordinator.

For more information about Act 47, please contact Amanda Sundquist in the West Chester office.

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