Curtis L. Coonrod is a certified public accountant (CPA) who has led operations at the C. L. Coonrod and Company accounting firm in Indianapolis, Indiana, for more than three decades. In this role, Curtis “Curt” Coonrod and his team assist local governments in areas of budgeting and planning, with an overriding goal of helping municipalities avoid or recover from financial situations such as bankruptcy.

Bankruptcy is a financial situation traditionally associated with private citizens or businesses. However, a town or city that mismanages its budget or experiences an unexpected, costly disaster may need to consider filing bankruptcy as well. In fact, Chapter 9 bankruptcy was established during America’s Great Depression to address this exact situation and is also referred to as “municipality bankruptcy.”

Town leaders and outside financial consultants will need to determine the wisest course of action in the case of a bankruptcy, with Chapter 9 helping municipalities keep creditors at bay while reorganizing debts. Chapter 7 bankruptcy is more severe and involves the liquidation of assets.

Since the United States formalized Chapter 9 bankruptcy proceedings, at least 500 municipalities have filed. Bankruptcy filings for municipalities can be difficult to track and do not always follow a clear pattern. For example, only one out of every 2,710 qualified towns, counties, and school districts filed between 2008 and 2020. However, 69 towns filed for bankruptcy between 2010 and 2012.

In 2013, Detroit became the largest city in the US to declare bankruptcy. Other notable municipality bankruptcy filings include Vallejo, California’s outstanding debt of $18 million in 2008 and Stockton, California’s astounding $700 million bill. That said, these filings are paltry compared to Jefferson County, Alabama’s $4.2 billion filing and Detroit’s $18.5 billion debt.