Investing in the High Yield Municipal Market: How to Profit from the Current Municipal Credit Crisis and Earn Attractive Tax-Exempt Interest Income

Nine Differences between Chapter 9 and Chapter 11

1. Order for Relief

The order for relief is the purpose of filing for bankruptcy and grants the debtor relief from creditors until a Chapter 11 plan of reorganization (POR) or Chapter 9 plan of debt adjustment is approved. Upon a voluntary Chapter 11 filing, there is an automatic order for relief. However, under Chapter 9, the debtor must first fulfill certain requirements before the bankruptcy court enters an order for relief, thus allowing the case to proceed. Months and years can pass by before the order for relief is issued, during which time the Chapter 9 debtor attempts to fulfill those requirements as outlined in the Bankruptcy Code.

Thus, upon entry into the Chapter 9 bankruptcy process, the initial game plan for the municipality centers upon obtaining that order for relief. But even aside from those requirements, an order for relief is not assured. Section 921(c) permits objections to the petition to be filed, for example, whether negotiations were conducted in good faith or whether the petition was filed in good faith, and the bankruptcy court must hold a hearing on each objection. If the petition is not dismissed upon these objections, Section 921(d) requires the court to order relief, allowing the case to proceed finally under Chapter 9.

2. Eligibility

In Chapter 11, there is no insolvency requirement or eligibility requirement for being a debtor in the bankruptcy process. The corporate debtor enjoys the right to choose ...