(Newswire.net — September 22, 2014) — For many Americans, living without financial certainty, can lead to disaster. In Newark, for example, three-quarters of the population does not have enough money saved to meet basic expenses for three months at the federal poverty level, about $6,000 for a family of four.
Other cities where more than half the population has nearly no financial leeway include Detroit at 68 percent, Miami at 67 percent, Cleveland at nearly 65 percent, as well as Laredo, Tex., Birmingham, Ala., Milwaukee, Wis.; Buffalo; and Memphis, Tenn.
“This is the first time that we’ve ever had data on all the cities and municipalities in the United States that tells us about the level of savings and financial security or insecurity,” said Andrea Levere, president of the Corporation for Enterprise Development, a nonprofit based agency in Washington that is supported by foundations and banks.
But what that exactly means for people living in those cities? Well, creditors could end up being the biggest losers. For example, the city of Detroit has over 100,000 creditors consisting of banks, insurance companies, pension funds, individual investors, retirees, etc. The bond insurers will also feel the brunt of the bankruptcy. But the retirees and other small individual investors are by far the most vunerable as a group of creditors to these cities.
“We’ve had cities go bankrupt in the past, but usually those are isolated events that occur because the city lost a big lawsuit or had a local catastrophe,” says Franklin C. Adams, a bankruptcy lawyer in Riverside, Calif. “What’s different and quite troubling is that larger economic conditions seem to be the cause, and we haven’t seen that since the Great Depression.”
Municipal bankruptcies are nothing new, but several filings over the past year — punctuated by the July 2013 bankruptcy in Detroit — have transformed Chapter 9 of the US bankruptcy code for municipal reorganization from a relatively obscure body of law into a hot topic.
Residents of struggling cities are wondering what the possibility of bankruptcy means for them.
From 1937 to 2008 there were fewer than 600 municipal bankruptcies. As of June 2012 the total was around 640. In 2012 there were twelve chapter 9 bankruptcies in the United States, and five petitions have been filed in 2013.Since 2010 thirty six petitions have been filed.
Chapter 9, Title 11 of the United States Code is a chapter of the United States Bankruptcy Code, available exclusively to municipalities that assists them in the restructuring of debts.