RI Fire District Files for Chapter 9 Protection

The Central Coventry Fire District has filed for federal bankruptcy protection. The filing comes on the heels of several years of financial struggles that saw state insolvency proceedings and receivership.

The district has reportedly filed for Chapter 9 bankruptcy, which is one of several types bankruptcy. The most common types are:

• Chapter 7 – Straight liquidation
• Chapter 11 – Reorganization
• Chapter 13 – Wage earner reorganization

Chapter 9 – Municipal reorganization – is similar to Chapter 11 reorganization in that the municipality remains in operation while it reorganizes it’s finances. It is relieved from any and all prior obligations (such as pending lawsuits and collection actions) while it prepares a plan to reorganize – but still has to continue paying any new bills it incurs.  Here is more on how Chapter 9 functions.

One the truly unfortunate aspects of Chapter 9 compared with the other forms of bankruptcy, is that virtually all forms of debt are dischargeable. In other words, when elected officials in a given community have engaged in patently illegal activities (ie preparing fraudulent budgets; intentionally creating a financial nightmare; budgeting for things like pensions and health care and then using the allocated funds for other purposes – things that would be highly illegal if a private business did it), those debts will be discharged (considered satisfied) under Chapter 9 – whereas under the other chapters a debtor would remain liable for those debts even after bankruptcy.

One of the nice thinks about bankruptcy… it is a process that is free from the normal politics associated with municipal financial problems. It is managed by a federal court that will not be subject to the pressures that elected officials are. The bankruptcy court has broad discretion and powers to address things that others may not have the political willpower to tackle. That could mean reducing fire protection/staffing or increasing it. It could also mean raising taxes.