Stockton gives Chapter 9 bankruptcy plan to court

Unbelievably, it’s been a year since Stockton, California, filed bankruptcy becoming the largest city in the United States to make such a decision (of course, their bankruptcy has recently been overshadowed by the possibility of Detroit’s impending bankruptcy).

How much has it cost Stockton? Going broke ain’t cheap. In fact, city officials note they have spent a whopping $7 million in attorney and consultant fees with another $12 million expected to be spent in the coming year.

But maybe you do have to spend money to save it. According to city officials, the money has been well spent. In fact, city officials estimate that millions will be saved over the next 30 years due to the city’s spending cuts. Where have the greatest savings been realized? Stockton started by limiting contributions to retiree health care, settling expensive lawsuits with labor groups and negotiating new contracts with police officers, firefighters and other city employees.

How did Stockton get here?


It’s the same song, but we are definitely on the second or third verse by now. Whether it’s Stockton, Detroit, New York, or San Bernardino the story is the same: cities spend like crazy while times were good, giving lucrative contracts to city employees and overbuilding by issuing bonds, and spending money they should have saved.

What happens when the population drops, property values plunge and workers flee the city to find work, often in the south? The city is left with bills they have not hope of ever paying and workers crying foul when they don’t get the pensions they feel “entitled” to receive.

Stockton offers repayment plan to bankruptcy court


Stockton officials have announced they have reached a milestone in the bankruptcy process. According to Reuters, they will submit their draft repayment plan to the bankruptcy court on Friday. They also note negotiations with some bondholders is continuing with the hope that an agreement will eventually be reached. After the plan is reviewed by the court, it will be finalized and submitted with the U.S. Bankruptcy Court in Sacramento by October 4th.

The submission of the plan does not mean all of the city’s problems are solved, but according to Stockton lawyers, this move is a “milestone” for the city and its efforts to reduce its costs.

Not everyone is happy. Bond holders continue to object to the process. The attorneys said Stockton was preparing a “cramdown” plan to file with the court, and according to Reuters, a “majority of creditors and holders of two-thirds of claims must vote to approve it.”

Can pension holders be paid and bondholders get the shaft?


Financial experts are watching the Stockton case very closely. Stockton officials have argued they should be able to continue to pay state pension funds to the California Public Employees’ Retirement System while asking two main bond insurers, Guaranty and National Public Finance Guarantee, to take a loss.

What does the court say? The bankruptcy judge has yet to weigh in on the proposal but has stated that he will review the plan to ensure it meets state and federal bankruptcy law requirements. What do other experts say? They claim this case could make its way to the Supreme Court eventually allowing the highest court in the land to decide whether creditors can be treated differently in bankruptcy.

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Beth L. is a content writer for Better Bankruptcy. Good content and information is one of many methods we utilize to bring you the answers you need.