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Can a Public School District Declare Bankruptcy?

Can a Public School District Declare Bankruptcy?

: Richard West Law Office

Typically we view declaring bankruptcy as a personal or business endeavor, however, government entities such as utility boards, school districts, and even entire UC cities can declare bankruptcy if they become insolvent. The US Bankruptcy code anticipated government-run entities running out of money by creating a special chapter, Chapter 9 bankruptcy that allows government organizations to file for debt relief against creditors. It requires a lot of money to run a school district of even modest size, but what would a school district do if it ran out of money?

Chapter 9 Bankruptcy

A school district can indeed declare bankruptcy, in fact, numerous schools have declared bankruptcy, shut down, and simply relocated its students to others public schools. When faced with financial hardships, school districts and other municipalities can utilize Chapter 9 bankruptcy in order to reorganize debt. The schools are allowed a specific amount of time in order to put a new financial plan in place that will refinance debt and loans at a reduced amount. During a Chapter 9 municipal bankruptcy, some state laws allow for a government entity to elect an emergency manager to lead the organization through Ohio bankruptcy. This can be an individual or the state government itself.

How Often does Chapter 9 Bankruptcy Occur?

Chapter 9 bankruptcies aren’t common, with only 312 or so being filed since the mid 50’s, however the US Bankruptcy Code includes these types of bankruptcies in order to offer government organizations the same debt relief options afforded to individuals with Chapter 7 and Chapter 13 bankruptcy, as well as, business with Chapter 11 bankruptcy.

Importance of Financial Health in School Systems

Having a good educational program is essential to the economy and the well-being of citizens but they come with a large price tag. Budget crises are typically followed by budget cuts, but some school systems in America have found that this too, doesn’t always balance the budget.