Relevant:
- Vallejo, California City Officials Vote to File for Bankruptcy
- Judge dismisses CalPERS appeal of San Bernardino bankruptcy
- 46 Years later, Watts destroyed anew
- Stockton Going Broke Shows Cop Pay Rising as California Property Collapsed
- Federal Bankruptcy Court Lets Stockton, California Cut Retiree Health Care Benefits; Flood of City Bankruptcies Coming
2012-03-18 — nytimes.com
"Obviously, what Calpers wants is that it doesn't come up in the process, which I think is ridiculous," said David A. Skeel Jr., a law professor at the University of Pennsylvania who writes frequently on bankruptcy. "My view is that even the California Constitution is subsidiary to federal bankruptcy law."
What bothers us is that in these sorts of discussions still no one is talking about the 800 lb gorilla: that inability to pay, as a practical matter, trumps all bankruptcy law (federal or state).
In the Stockton issue (as in other municipal bankruptcies cropping up around the country), this turns into a "federal bankruptcy vs. state pension law" debate -- inane because it simply doesn't matter what state law says: the money isn't there.
But importantly, even federal law often fails to acknowledge the reality of inability-to-pay: consider the bankruptcy "reform" act of 2005, which eliminated the ability of judges to "cram down" mortgage debt. That's good and nice for the banks (in the short run, at least), but at the end of the day, it doesn't actually increase the ability of underwater borrowers to pay back inflated mortgages.
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Comments:
zrodnwhowasbanned at 11:53 2012-03-19 said:
even if the city of California was placed in a voluntary or involuntary bankruptcy, the pension plans would be prioritized, even if no money was available. A trustee would be placed and a bond offering issued with a deferred 10 year dividend tax exempt status to encourage investors to purchase the ,debt, bonds for strategic development and fulfillment based on the future revenue and cash outlays created by the city. The prioritized claim theory occurs often in bankruptcy court for individuals such as student loans, federal tax debt, parking tickets, etc. The basis of a claim can be modified and prioritized based on the motions filed in court with the judge making the final decisions since the bankruptcy code works in this matter. Emphasis on the constitutional and moral hazards would place the matter under scrutiny thereby creating a priority claim on the matter. In some bankruptcy cases if the population would be harmed by a decision the federal government could intervene and either provide the Dip financing, debtor in possession financing, or purchase or allocate the bonds to stabilize and nullify the argument. Permalinkadd a comment | go to forum thread
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