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Second Municipal Bankruptcy of 2018: How Many More to Come

Second Municipal Bankruptcy of 2018: How Many More to Come

February 23, 2018
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By: Laura Day DelCotto

Chapter 9 municipal bankruptcies remain rare in comparison to all other types of bankruptcy filings. There are still less than 500 total cases nationwide since the 1930s when chapter 9 was enacted. While public finance and the municipal bond market seem to remain stable, it’s interesting to note that two chapter 9 cases have been filed so far in 2018.

While large cases like Detroit and Puerto Rico receive all the press coverage, the small cases are the ones seeing the uptick. Both municipal cases filed in 2018 are health care related. Many small local governments are hurting financially, with tax and other revenues sources never recovering since the 2007 economic downturn. Local hospitals play a crucial role in small communities, both for health care access as well as serving as one of the largest local employers.

The Surprise Valley Health Care District in Cedarville, CA filed chapter 9 bankruptcy on January 4, 2018, Case No. 18-20070 in the United States Bankruptcy Court for the Eastern District of California. The District operates a rural hospital and clinic, running an operating deficit of between $70,000 to $100,000 per month. Its Board of Directors declared a state of fiscal emergency after a judgment creditor levied on its bank accounts, in effect seizing the cash flow.

The second 2018 filing was on February 21, 2018, the Iron County Hospital District, d/b/a the Iron County Medical Center, in Pilot Knob, MO. Case No. 18-10111 in the United States Bankruptcy Court for the Eastern District of Missouri. The Hospital is a critical access hospital serving a low income population, with around 100 employees, and located approximately 90 miles south of St. Louis.
Both of these cases are small, with under $10 million in debt. While small in size, they may represent the beginning of an emerging trend for small and struggling local government districts that have simply run out of money to operate and are in under-served, poor and/or rural areas of our country. What is going to happen in these types of cases may go unnoticed, but it is a looming situation across all 50 states, where the large get larger, and the small can’t survive. Those providing local and emergency health care are now proving that they will fight to continue to provide critical access to health care for the populations they serve.

About DelCotto Law Group

DelCotto Law Group is Kentucky’s asset protection law firm known for its commitment to the lifetime success of its clients. With offices located in Lexington, Louisville and Danville, DLG serves Kentuckians with complicated financial matters, especially in the areas of bankruptcy, complex litigation, and estate planning. For more information about chapter 9 or DelCotto Law Group, please call (859) 231-5800 or email info@dlgfirm.com.