Atlantic City May Go Bankrupt—Should You Follow?

According to NJ.com, Atlantic City, New Jersey, may face bankruptcy if lawmakers can’t decide on what to do about the municipality’s over $120 million dollar deficit. New Jersey Today notes that if the city goes bankrupt, it will be the first municipality in New Jersey to do so in 78 years. Lawmakers are deadlocked about what to do. Governor Chris Christie and state Senate leaders passed a plan that would permit the state to take over the municipality, but critics claim that this plan will allow the state to break union contracts and endanger retiree’s pensions.

If the city declares bankruptcy, there could be long-term impact on state credit ratings and businesses. Hotel rates have even gone down in the wake of the deadlock.

Many lawmakers claim that bankruptcy should be avoided at all costs. When it comes to municipalities, this is probably good sense. Yet, municipal bankruptcies and personal bankruptcies are quite different in nature. With all the talk about Atlantic City’s bankruptcy and its potential impact on workers, some may have started to wonder whether they should consider declaring personal bankruptcy.

So, what is the difference between personal bankruptcy and a municipal one?

First of all, bankruptcies are usually classed as Chapter 7, Chapter 13, or Chapter 11. During a Chapter 7 bankruptcy your debts may be discharged and you may be able to keep certain exempt property, such as your house, your car, and certain possessions. You may be required to sign and present a Reaffirmation Agreement to the Court to keep such items as your car.  During a Chapter 13 bankruptcy, you’ll pay a percentage your debts, based upon a mathematical formula, for a period of time before the balance of same are discharged. This is a good way to protect such things as equity in your home.  Individuals may file for Chapter 13 bankruptcy if they have the ability to pay debts and are within the debt limits. Chapter 11, on the other hand, allows small business owners to restructure their debts and their businesses so that they can continue to operate. Chapter 11 is more complex than Chapter 7 and 13, and is usually used by business owners to restructure debt. Individuals do file for Chapter 11, but that is usually in a case where the potential Debtors do not qualify for Chapter 13 due to the debt limitations in Chapter 13.  As a general rule, these types of cases are much more difficult but they do offer certain protections that Chapter 13 does not.

Municipal bankruptcies, however, fall under Chapter 9 bankruptcy. For instance, when Detroit filed for bankruptcy, it used municipal bankruptcy laws to do so. Municipal bankruptcies allow cities to restructure their debts so that they can continue to operate. When cities face bankruptcy, they can either raise taxes or find other ways to cut costs. The reality is that cutting costs, at least in the case of Atlantic City, may lead to many people losing their pensions, employees may lose their contracts, and certain municipal services may be privatized. The ironic outcome may be that by avoiding Atlantic City’s bankruptcy, private bankruptcies may have to happen as people lose jobs and pensions.

Bankruptcy is an important protection afforded to municipalities, private citizens, and businesses under the law. If you’re struggling with debts and financial difficulties, a bankruptcy lawyer may be able to assist you. Stuart M. Nachbar, Esq. is a qualified bankruptcy attorney in New Jersey who works with clients who are considering bankruptcy. Bankruptcy is not for everyone. It is wise to speak to a lawyer before you file. Visit www.snanj.com for more information.