Emory Bankruptcy Developments Journal

Volume 32Issue 2
The Thirteenth Annual Emory Bankruptcy Developments Journal Symposium

The Waterfall of Tiers: A Relocation Cost-Based Theory of Municipal Insolvency and a Proposal for a New Municipal Bankruptcy Regime

Jonah Peppiatt | 32 Emory Bankr. Dev. J. 335 (2016)

The “non-liquidation assumption” presumes that municipal bankruptcy law exists to provide municipalities a “breathing spell” from creditors and disallows the liquidation of municipalities. This assumption rests on the notion that chapter 9 exists solely to help municipalities continue to provide essential public services. This approach runs counter to the prevailing theory of corporate bankruptcy—that bankruptcy exists to resolve collection action problems among creditors and maximize social welfare. This Article rejects the “non-liquidation assumption” and applies a modified theory of municipal bankruptcy based on corporate bankruptcy theory. This Article further proposes a waterfall bidding alternative municipal bankruptcy regime that looks to promote an efficient market-based allocation of resources.

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