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Jefferson County Permitted to Proceed with Bankruptcy, Judge Says

Source: Wall Street Journal | Jefferson County, Ala. | March 5, 2012



Jefferson County, Ala., can now proceed with the largest municipal bankruptcy in U.S. history.

After Wall Street banks tried to block the county from declaring bankruptcy, U.S. Bankruptcy Judge Thomas Bennett ruled that it can legally do so, according to the Wall Street Journal.

The financial firms argued that the county’s money problems, which include $3.2 million in sewer-system debt owed to several banks, stemmed from warrants and not bonds. This distinction, the firms argued, disqualified the county for bankruptcy protection under a state law. But Bennett wrote in his 28-page court opinion that the type of debt a county has is irrelevant to whether they can qualify for bankruptcy.

The county voted 4 to 1 to file for bankruptcy in November -- a relatively rare move when almost half of U.S. states ban or don't explicitly allow towns, cities and counties to file for Chapter 9 bankruptcy protection, reports the Journal.

Now that the county has been sealed with bankruptcy protection, it must resolve in court how much of residents' monthly sewer bills will go toward bondholders to pay down the debt.

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