New developments in Public Bankruptcy

June 18, 2012

Last April, an event took place with potentially far reaching consequences for State Pension funds and the retirees they support.  And of all places, it started in the Commonwealth of the Northern Mariana Islands.  That’s where, on April 17, the N.M.I. Retirement Fund, which serves pensioners in the Mariana Islands, filed for bankruptcy.

Under Chapter 9 of the Bankruptcy Code, Municipalities, which are really a form of State administrative subdivision may file for bankruptcy protection and restructuring.  There’s no similar Chapter serving States themselves, or United States Territories such as the Northern Mariana Islands.  11 U.S.C.A. 101(13) even defines ‘debtor’ as a “person or municipality.”

But the N.M.I Retirement Fund filed for Chapter 11 anyway, and if it’s allowed to proceed through bankruptcy, it could open the door to bankruptcies by other state and territorial pension funds.  That, in turn, could affect a large number of pensioners across the country.  The Court’s hearing on a motion to dismiss was held June 1, a decision is expected any day now.

Research References

The case has been covered extensively since it was filed.  Try the following search in ALLNEWS:  mariana /3 island /p retir! pension! & bankrupt! & da(aft 04/01/2012).  At the time of this writing, I found 16 results.

The case is being heard by Bankruptcy Judge Robert Faris, who normally sits in the Bankruptcy Court for the District of Hawaii but was assigned the case when the Mariana Islands’ sole federal judge had a conflict of interest.  Previous decisions by Judge Faris can be found by searching ju(Robert /3 faris) in HI-CS-ALL.  I found 98 opinions, which may shed some light on how he will approach the Mariana Islands’s case.

Even if the N.M.I. Retirement Fund is ruled to be a State Entity, some bankruptcy experts argue that this shouldn’t matter, as States themselves should be allowed to file.  To find some commentary on this, I tried the search “State indebtedness” and bankruptcy in the Law Reviews and Journals page on WestlawNext.  Two recommendations from that list: 59 UCLA L. Rev. 322 and 42 Golden Gate U. L. Rev. 217.