Gavel
A judge will decide who has standing to file bankruptcy for the City of Harrisburg. Image: Flickr / fabliaux / CC-BY-SA

Since 1980, only 243 small cities have filed for bankruptcy protection. One of the largest-such filings ever, by Harrisburg, Pa., was started a few days ago. The mayor of Harrisburg, however, claims that the filing is illegal.

The bankruptcy filing of Harrisburg

Harrisburg City Council voted 4-3 on Wednesday that the city should file for bankruptcy. The city currently owes over $300 million to various creditors, and is behind by over $83 million. Most of this debt is owed on municipal bonds, which are traded on markets similar to stocks and bonds. The petition for Chapter 9 bankruptcy filing would essentially protect the city and provide a framework for the city to re-negotiate with creditors.

Mayor of Harrisburg claims filing was illegal

The initial hearing on Harrisburg’s Chapter 9 bankruptcy filing is currently scheduled for Monday morning, Oct. 17. Mayor Linda Thompson has filed a petition in the case, claiming that the City Council acted outside of the law of Harrisburg. An emergency dismissal motion has also been filed by Tucker Arensberg PC, the law firm hired by Thompson to oppose the bankruptcy. Mayor Thompson has also cited both Pennsylvania and federal bankruptcy law in the case.

Filing may have been a stalling tactic

The 4-3 vote of the City Council to file for bankruptcy may well have been a stalling tactic for the city. Law of the Commonwealth of Pennsylvania states that a city must have permission from the state to file for bankruptcy. The state has been threatening to take over Harrisburg, which the mayor and City Council have been working to prevent. By filing for bankruptcy, the city is effectively turning the entire mess over to the courts. When a judge decides the fate of the bankruptcy case, the judge will also effectively be deciding who has standing to make financial and debt decisions for and about the City of Harrisburg.

Sources

MSN: http://bottomline.msnbc.msn.com/_news/2011/10/14/8306663-bankruptcy-may-just-be-the-start-of-harrisburgs-headaches
Reuters: http://www.reuters.com/article/2011/10/14/us-harrisburg-mayor-bankruptcy-idUSTRE79D3AR20111014
SF Gate: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/10/14/bloomberg_articlesLT2AFK07SXKX.DTL

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