Municipal Bankruptcy is a Tenth Amendment Issue
The initial Projo report on today’s announcement that the receiver for Central Falls will file for bankruptcy highlights one of the many high-level policy, political and legal issues that municipal bankruptcy is going to involve…
In a commercial bankruptcy, the judge has the authority to order the sale of assets, even the closing of the business, to pay the creditors. But a government can’t be sold off.
A Chapter 9 judge can approve or reject a receiver’s settlement proposal, but he or she can’t order the sale of assets because of the Tenth Amendment to the United States Constitution, which states that any powers not specifically given to the federal government by the Constitution belong to the states, meaning a federal bankruptcy court can’t tell the city how to run its affairs, like selling assets.