Bankruptcy filings by major cities have reinvigorated attention to municipal bankruptcy. As chapter 9 and its application have become more like chapter 11, a wide range of creditors are being swept into the process. As written before, city cases now have classes of general unsecured creditors. Those classes also have been including plaintiffs in civil rights lawsuits alleging unconstitutional police conduct. The proposed payouts vary. San Bernardino's bankruptcy plan, which seeks to release the liability of non-debtor officers as well as the debtor, has been proposing a 1% payout. The confirmation hearing is currently set for October 2016. Some cities with systemic police practice problems - Ferguson, Chicago - also are known to have pervasive financial difficulties. I am not suggesting or predicting they will end up in bankruptcy, but it is another reminder that civil rights advocates need to be up to speed on the impact of chapter 9, if only to be able to bargain in its shadow as other types of creditors do.
I have just posted a paper on this topic (revised and updated from a version posted earlier this summer). It walks through the issues and gives three brief case studies. Feedback from the Credit Slips readership would be very welcome, and/but please also pass along the link to civil rights lawyers who do § 1983 litigation. Here is the brief abstract:
When a financially distressed city files for bankruptcy, recovery for civil rights violations is at risk. This article examines the impact of bankruptcy on civil rights claims, with an emphasis on allegations of police misconduct resulting in lawsuits under 42 U.S.C. § 1983. We walk through how a bankruptcy filing affects civil rights plaintiffs, starting with the immediate injunction against litigation and debt collection activity, and ending with the legal release of debt and a restructuring plan. Using primary source materials, we offer three brief case studies: Detroit, Vallejo, and San Bernardino. We conclude with suggestions on where to go from here in research and advocacy.