Bankruptcies, defaults, and other local government financial emergencies Page: 37
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THE U.S. BANKRUPTCY ACT,
The 1973 report concluded that it was appropriate to
use the Federal Bankruptcy Act in two instances. First,
when there is inadequate response to a local fiscal emergency
by the state and second, when it is necessary to
stretch out the debt payment schedule of the local government.
However, the 1973 report suggested that the
bankruptcy law should "by its very existence encourage
solutions short of bankruptcy proceedings."
The earlier ACIR report also noted that the term bankruptcy
was inappropriate in terms of local governments
because they do not liquidate their assets to satisfy
creditors and they do not go out of business.1 Instead,
the federal act provides a basis for the government, with
agreement from most of its creditors, to reorganize and
adjust its finances under the supervision of a federal
judge. To make the federal law more usable for this purpose,
the 1973 report suggested several changes. The
three principal changes recommended were: to clarify
the definition of creditor; to permit a municipality to file
a petition without approval of its creditors, but only
after the parties have seriously tried to gain approval of a
plan and the state had been a party to such efforts; and to
provide for continued supervision of the affected government
after a plan is approved, preferably with the
court designating a state agency to do such supervision.
A number of other less important technical changes,
such as providing separate official forms for municipal
filings, were also recommended.
These recommendations were presented to the U.S.
Commission on Bankruptcy Laws, which was then reviewing
the entire bankruptcy code. Because of the very
limited use of Chapter 9, in 1973 there was little interest
expressed in changing the municipal provisions.
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United States. Advisory Commission on Intergovernmental Relations. Bankruptcies, defaults, and other local government financial emergencies, book, March 1985; Washington, D.C.. (digital.library.unt.edu/ark:/67531/metadc1317/m1/47/: accessed January 16, 2019), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.