* According to the BGA, there have been 660 Chapter 9 filings nationwide since 1937. Chapter 9 is a form of bankruptcy for local governments. Illinois doesn’t allow local governments to file Chapter 9 unless they successfully navigate a lengthy and complicated procedure (and even then, no towns over 25,000 are allowed into that procedure), but two small towns somehow got away with it…
The village of Brooklyn, a town of 750 people across the Mississippi River from St. Louis, filed in 2003, in part to help restructure payments related to lawsuits alleging police misconduct and financial mismanagement.
In the wake of an embezzlement scheme, the town, in a cost-cutting move, dropped its insurance coverage, leaving it unable to afford mounting legal costs, according to court filings.
In 2005, the nearby village of Alorton, population 1,960, filed for bankruptcy around the time a police shooting victim obtained a $978,000 judgment against one of the town’s officers. The victim was one of Alorton’s largest creditors, court filings show.
“I’ll be honest, I just got away with it,” says Belleville attorney Stephen Clark, who filed Chapter 9 petitions on behalf of both towns. “Everybody either didn’t know [about the authorization requirement] or they knew and felt it was better to approve the plan.”
The village of Washington Park, another Clark client, wasn’t as fortunate.
A federal judge dismissed the town’s bankruptcy petition in 2010 because state officials didn’t authorize the move. Washington Park also filed in 2004 but later withdrew, Clark says.
A 2014 analysis by the law firm of Heyl Royster concluded that the bankruptcy proceedings “apparently survived because no one objected to the filing of the petition or raised this issue.”
Chapter 9 access has become a major issue for the Illinois Municipal League of late.