Pensions and Property Rights in Municipal Bankruptcy

55 Pages Posted: 28 Feb 2014 Last revised: 13 Mar 2014

Richard M. Hynes

University of Virginia School of Law

Steven D. Walt

University of Virginia School of Law

Date Written: February 26, 2014

Abstract

Recent large municipal bankruptcies raise legal and moral questions of the priority in payment of the municipality’s pension obligations. Focusing on existing law, we describe the bases on which pension obligations might have priority in bankruptcy. Priority under existing bankruptcy law requires that these obligations be supported by property rights effective outside bankruptcy. Section I identifies and rejects arguments that pension priority can be granted without property rights as part of Chapter 9 reorganization. Section II describes the requirement that pension priority be supported by property rights, identifies how statutory liens or trusts in favor of pensions can create priority, and describes the barriers to using these devices. A conclusion briefly describes revisions to the Bankruptcy Code that would allow pension priority, with or without property rights.

Keywords: Bankruptcy, Municipal Finance, Pensions

JEL Classification: G33, H55, H63, H74, K29

Suggested Citation

Hynes, Richard M. and Walt, Steven D., Pensions and Property Rights in Municipal Bankruptcy (February 26, 2014). Virginia Law and Economics Research Paper No. 2014-08; Virginia Public Law and Legal Theory Research Paper No. 2014-21. Available at SSRN: https://ssrn.com/abstract=2401838 or http://dx.doi.org/10.2139/ssrn.2401838

Richard M. Hynes (Contact Author)

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States
434-924-3743 (Phone)

Steven D. Walt

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States
804-924-7930 (Phone)
804-924-7536 (Fax)

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